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      Question

      Section 12(1)(i) of the Banking Regulation Act, 1949

      conditions the right to carry on banking business in India on the banking company satisfying certain capital-structure requirements. Which of the following correctly states that requirement?
      A The paid-up capital must be not less than the authorised capital Correct Answer Incorrect Answer
      B The subscribed capital must not be less than one-half of the authorised capital, and the paid-up capital must not be less than one-half of the subscribed capital Correct Answer Incorrect Answer
      C The paid-up capital must equal at least twenty-five per cent of the authorised capital Correct Answer Incorrect Answer
      D The subscribed capital must equal the authorised capital at all times Correct Answer Incorrect Answer
      E The paid-up capital must not be less than the entire subscribed capital Correct Answer Incorrect Answer

      Solution

      Section 12(1)(i) requires that the subscribed capital of the banking company is not less than one-half of the authorised capital, and the paid-up capital is not less than one-half of the subscribed capital. If the capital is increased, the company must comply with these conditions within such period not exceeding two years as the Reserve Bank may allow. The provision prevents situations where a company has a nominally large authorised capital but minimal subscribed and paid-up capital, which could mislead depositors and other stakeholders about the bank’s financial strength. Section 12(1)(ii), substituted by the Banking Laws (Amendment) Act, 2012, further provides that a banking company’s capital must consist only of equity shares, or of equity shares and preference shares issued in accordance with RBI guidelines.

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