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CS Professional · Banking and Insurance - Laws and Practice · Banking Operations

While considering a licence application from Vindhya Bank Ltd, the Reserve Bank finds that the company has a weak capital base and poor earning prospects. Which condition in Section 22(3) is directly in doubt?

The doubted condition is that the company has adequate capital structure and earning prospects, found in Section 22(3)(d). Weak capital and poor earnings fail this specific test, which is distinct from the depositor-payment, management, and public interest conditions.

  1. AThat the company has adequate capital structure and earning prospectsCorrect
  2. BThat the company is in a position to pay depositors in full as their claims accrue
  3. CThat the licence would serve the banking facilities in the proposed area
  4. DThat the general character of the proposed management is not prejudicial to public interest

Explanation

Section 22(3)(d) specifically requires that the company has adequate capital structure and earning prospects. The depositor-payment condition in clause (a) is about ability to meet claims, which is a different test from capital structure and earnings.

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