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      Question

      Section 19(2) of the Banking Regulation Act, 1949

      restricts a banking company from holding shares in any company, whether as pledgee, mortgagee or absolute owner. The holding must not exceed:
      A Twenty per cent of the paid-up share capital of that company, or twenty per cent of the bank’s own paid-up capital and reserves, whichever is more Correct Answer Incorrect Answer
      B Fifty per cent of the paid-up share capital of that company in all cases Correct Answer Incorrect Answer
      C Twenty-five per cent of the bank’s own paid-up capital and reserves only Correct Answer Incorrect Answer
      D Thirty per cent of the paid-up share capital of that company or thirty per cent of the bank’s own paid-up capital and reserves, whichever is less Correct Answer Incorrect Answer
      E Ten per cent of the paid-up share capital of that company in all cases Correct Answer Incorrect Answer

      Solution

      Section 19(2) provides that, save as permitted under sub-section (1), no banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding thirty per cent of the paid-up share capital of that company or thirty per cent of its own paid-up share capital and reserves, whichever is less. The use of “whichever is less” makes the effective ceiling the lower of the two computations, tightening the restriction. The proviso grants a transitional window of up to two years to bring pre-existing holdings into conformity. The provision limits a bank’s exposure to equity concentration risk in any single company.

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