Previous Year Question

The Reserve Bank of India regulates and supervises commercial banks under the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. All four matters listed in the question fall within RBI’s regulatory framework.

Statement 1 is correct. RBI regulates the liquidity of banks’ assets through CRR, SLR and other liquidity and prudential requirements.

Section 24 of the Banking Regulation Act concerns the maintenance of a prescribed proportion of assets in liquid form. These requirements help ensure that banks possess sufficient liquid resources to meet their liabilities.

Statement 2 is correct. Under Section 23 of the Banking Regulation Act, a banking company cannot open a new place of business or, in specified circumstances, shift an existing place of business without RBI’s prior permission. Branch opening, relocation and expansion are, therefore, regulated by RBI.

Statement 3 is correct. A scheme for the voluntary amalgamation of banking companies requires RBI’s sanction before it becomes effective. Section 44A of the Banking Regulation Act deals with such voluntary amalgamation.

Further, where the condition of a bank threatens depositors’ interests, RBI may prepare a reconstruction or amalgamation scheme under Section 45, which may be sanctioned by the Central Government.

Statement 4 is correct. The winding-up of a banking company is not merely an ordinary corporate decision. The Banking Regulation Act contains special provisions governing the winding-up of banks. In specified circumstances, RBI may apply to the High Court for winding up and performs an important regulatory role in the process.