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CS Executive · Setting Up of Business, Industrial and Labour Laws · Financial Services Organization

Under section 45MBA of the RBI Act, 1934, the Reserve Bank frames a scheme for a distressed NBFC, Kaveri Finance Ltd, to preserve activities critical to the financial system. Which statement is correct?

The scheme may split the NBFC into different units and establish Bridge Institutions. These are temporary institutional arrangements that preserve critical activities. Persons whose shares are cancelled or pay reduced get no compensation, and the Bank acts after inspecting the books.

  1. AThe scheme may split the NBFC into units and set up Bridge Institutions, which are temporary arrangementsCorrect
  2. BBridge Institutions are permanent entities that replace the NBFC's registration
  3. CThe scheme may cancel shares held by the chairman, who must then be compensated at market value
  4. DThe Bank may frame the scheme without any inspection of the NBFC's books

Explanation

Section 45MBA(1)(c) allows splitting the NBFC into units and creating Bridge Institutions, defined as temporary arrangements. Cancelled shares or reduced pay carry no entitlement to compensation under sub-section (3), and the Bank acts upon an inspection of the books.

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