Banking Regulations Quiz

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Questions and Answers

What power does the Central Government have regarding banking companies in special cases?

To make schemes for banking reforms
To dismiss the board of directors at will
To acquire the undertakings of banking companies (correct)
To determine dividend payouts for shareholders

Which body is designated as the official liquidator for banking companies?

The Central Government
The Reserve Bank (correct)
The High Court
The Tribunal

Which provision allows the High Court to determine all claims related to banking companies?

Section 45A
Section 39
Section 36AI
Section 45B (correct)

What happens to deposited credits during the winding-up process of a banking company?

They are deemed proved (D) Signup and view all the answers

Under which section is the Tribunal granted the powers of a civil court?

Section 36AI (B) Signup and view all the answers

What does Section 41A focus on in the winding-up proceedings?

Notice to preferential claimants and creditors (C) Signup and view all the answers

Which section specifies that Part IIIA will override other laws?

Section 45A (C) Signup and view all the answers

What is the purpose of Section 39A in relation to liquidators?

Applying the Companies Act to liquidators (B) Signup and view all the answers

What action can the Reserve Bank take if a banking company's Board of directors does not meet specified requirements?

It can order a reconstitution of the Board. (D) Signup and view all the answers

What happens if a banking company does not comply with the Reserve Bank's order within two months?

A director may be removed by drawing lots. (C) Signup and view all the answers

What is the status of an appointment made under this section?

It is final and cannot be questioned in any court. (A) Signup and view all the answers

How long does a newly appointed director hold office?

Until the date the predecessor would have held office. (B) Signup and view all the answers

What must happen for a person to be removed from the Board of directors?

A determination made by the Reserve Bank. (C) Signup and view all the answers

What is the implication of a defect in the composition of the Board of directors?

It does not invalidate any actions or proceedings of the Board. (C) Signup and view all the answers

What restriction is placed on directors appointed under this section in terms of tenure?

Their term lasts as long as the predecessor's would have. (B) Signup and view all the answers

What happens if a banking company fails to fulfill the Reserve Bank's requirements?

It may risk losing its banking license. (B) Signup and view all the answers

What percentage of total demand and time liabilities must a non-scheduled banking company maintain as a cash reserve?

As specified by the Reserve Bank (A) Signup and view all the answers

Which of the following is NOT included in the 'liabilities in India' for a banking company?

Balance in current accounts (C) Signup and view all the answers

When must banking companies submit their cash reserve returns to the Reserve Bank?

Before the twentieth day of each month (B) Signup and view all the answers

What happens if the designated Friday for reporting is a public holiday?

The report is submitted on the previous working day (B) Signup and view all the answers

What is included in 'time liabilities' for banking companies?

Fixed deposits with predetermined terms (C) Signup and view all the answers

Which of the following institutions provides advances that are excluded from a banking company's liabilities?

Exim Bank (C) Signup and view all the answers

What is the purpose of maintaining a cash reserve for banking companies?

To ensure liquidity and monetary stability (B) Signup and view all the answers

Which of the following directly affects the requirement of cash reserve maintenance?

Total demand and time liabilities (C) Signup and view all the answers

What legal grounds does not allow a suit to be maintained against the registered holder of a share in a banking company?

If the title of the share is claimed by someone other than the registered holder. (B) Signup and view all the answers

Under what circumstances can a transferee initiate legal proceedings against a registered holder?

If the transferee has obtained a lawful transfer of the share. (C) Signup and view all the answers

Which of the following individuals is responsible for providing shareholding details to the Reserve Bank?

The managing director or chief executive officer. (B) Signup and view all the answers

What is required from stakeholders regarding changes in their shareholding?

Full particulars of the extent and value must be reported. (C) Signup and view all the answers

What does the regulatory requirement specify for reporting shareholdings?

Both direct and indirect interests must be reported. (D) Signup and view all the answers

After which act did the requirement for reporting changes in shareholding get updated?

Act 4 of 2013. (D) Signup and view all the answers

What specific information must be included in the reporting to the Reserve Bank?

Changes to rights attached to the shares. (A) Signup and view all the answers

What percentage of shareholding is relevant for particular reporting requirements as amended in legislation?

Five percent. (A) Signup and view all the answers

What type of business may a banking company engage in according to the specified provisions?

Any form of business including buying and selling of bullion (B) Signup and view all the answers

Which of the following activities is NOT permitted for banking companies?

Acting as a managing agent for other companies (D) Signup and view all the answers

In terms of property management, banking companies are allowed to:

Manage properties that come into possession due to claims (D) Signup and view all the answers

Which financial instrument can banking companies deal with?

Bonds, debentures, and non-negotiable instruments (A) Signup and view all the answers

Which of the following best describes the banking company's role in trust administration?

Undertaking and executing trusts as a significant part of their operations (A) Signup and view all the answers

Banking companies are explicitly mentioned not to engage in which of the following activities?

Managing agent roles for other companies (B) Signup and view all the answers

How are the regulations concerning banking companies stated in relation to existing agreements or resolutions?

Agreements that contradict the Act become void (D) Signup and view all the answers

What specific type of business does the Banking Companies (Amendment) Act, 1959, empower banking companies to conduct?

Financial transactions involving various types of money instruments (A) Signup and view all the answers

Which of these forms of business can a banking company NOT engage in?

Selling retail banking services (A) Signup and view all the answers

For banking companies, what is one of the allowed functions regarding money and securities?

Transmitting and collecting money and securities (D) Signup and view all the answers

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Study Notes

Acquisition of Banking Companies

Central Government has the authority to acquire undertakings of banking companies under specific conditions.
A scheme for acquisition can be created by the Central Government.
Shareholders of acquired banks are entitled to compensation.
Tribunal is established for handling disputes related to acquisitions and has the powers of a civil court.
Tribunal procedures are outlined for efficient resolution of matters.

Suspension of Business and Winding Up

High Court plays a significant role in defining banking operations, including the suspension of business.
The winding-up process of banking companies is conducted by the High Court.
Reserve Bank is appointed as the official liquidator for affected banks.
Companies Act applies to liquidators managing the wind-up process.
Preliminary reports are required from the official liquidator during winding up.
Preferential payments are established for depositors during liquidation, prioritizing immediate claims.

Special Provisions for Winding Up Proceedings

Provisions in Part IIIA take precedence over other laws concerning winding up banking companies.
High Court is empowered to resolve all claims related to banking companies swiftly.
Ongoing legal proceedings can be transferred for efficiency.
Public examinations of directors and auditors are mandated.
Provisions exist for assessing damages against delinquent directors to hold them accountable.

Business Operations of Banking Companies

Banking companies can engage in a wide array of activities beyond traditional banking, including:
- Borrowing and lending money with or without security.
- Dealing with various financial instruments like bills, notes, and debentures.
- Facilitating letters of credit and foreign exchange transactions.
- Underwriting and issuing public or private loans.
- Conducting guarantee and indemnity businesses.
- Managing and selling assets acquired in satisfaction of claims.
The scope expands to include administration of estates and supporting employees or their dependents.

Governance and Regulation

The Reserve Bank can intervene in the composition of a banking company's Board of Directors to ensure compliance with legal requirements.
Failure to comply with Reserve Bank directives within two months may lead to removal of board members.
Appointment of new directors must adhere to existing regulations and timelines.
Acts of the Board are valid despite any detected compositional defects.
Shareholders must disclose their holdings to the Reserve Bank, ensuring transparency.

Cash Reserve Requirements

Non-scheduled banks are required to maintain a cash reserve in India daily equivalent to a specified percentage of their total demand and time liabilities.
This reserve can be held in various forms, including current accounts with the Reserve Bank.
Returns of held cash reserves must be submitted monthly to the Reserve Bank, detailing amounts on specified Fridays.

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