CAIIB BRBL Module A UNIT 2 MCQ – Control over organisation of Banks

Correct Answer: B. Obtaining a license from the Reserve Bank of India. A license from the central bank is required for any entity to operate as a banking company within the country.

Correct Answer: C. Findings from an inspection under Section 35 of the Banking Regulation Act, 1949. While court intervention is limited regarding licence decisions, the central bank can consider inspection findings as part of its evaluation process.

Correct Answer: B. The ability of the bank to pay its depositors. Ensuring the safety of depositors’ funds is a crucial factor considered by the central bank during the licensing process.

Correct Answer: C. Within six months. Banks already operating when the licensing requirement was introduced had a specific period to apply for the necessary license.

Correct Answer: C. It is subject to specific conditions the central bank may impose. The central bank’s discretion in licensing is exercised subject to certain conditions it deems necessary.

Correct Answer: B. Promoting competition and innovation. The “On tap” licensing approach is designed to allow for continuous applications, fostering competition and the introduction of new ideas in the banking sector.

Correct Answer: B. Section 22. The licensing of Small Finance Banks falls under the general licensing provisions of the Banking Regulation Act, 1949.

Correct Answer: B. The level of prudential supervision in the bank’s home country. The central bank considers whether the foreign bank is adequately supervised in its country of origin, often referencing international standards.

Correct Answer: B. If the bank ceases to carry on banking business. Discontinuing banking operations is a ground for the central bank to revoke a bank’s license.

Correct Answer: B. Providing an opportunity to rectify the non-compliance. Generally, the central bank gives the bank a chance to correct the issues before proceeding with license cancellation, unless it is detrimental to depositors.

Correct Answer: C. The Central Government. An appeal against the cancellation of a banking license by the central bank lies with the Central Government.

Correct Answer: B. Prior permission from the central bank. Opening new places of business or relocating existing ones typically requires the central bank’s prior approval.

Correct Answer: B. Any office where deposits are received. The definition includes locations where core banking activities like receiving deposits or cashing cheques take place.

Correct Answer: C. NABARD. Applications for licenses for Regional Rural Banks are usually channelled through NABARD to the central bank.

Correct Answer: C. Minimum paid-up capital and reserves. This section deals with the financial base required for banking companies to operate.

Correct Answer: B. ₹15 lakh. A specific minimum deposit is stipulated for foreign banks operating in India, with a higher amount for those with a presence in major financial centres.

Correct Answer: C. 20%. Foreign banks are required to deposit a portion of their yearly profits earned in India with the central bank.

Correct Answer: B. Subscribed capital must be at least half of authorized capital. Regulations specify a minimum ratio between a bank’s subscribed and authorized capital.

Correct Answer: B. Paid-up capital must be at least half of subscribed capital. Regulations require a certain proportion of the subscribed capital to be paid up.

Correct Answer: B. 10%. There is generally a ceiling on the voting rights an individual shareholder can exercise in a banking company, although this can be increased in some cases by the central bank.

Correct Answer: C. 5%. Acquiring a significant stake (5% or more) in a banking company’s capital or voting rights necessitates prior regulatory approval.

Correct Answer: C. 2.5%. There is a regulatory limit on the costs associated with issuing and selling a bank’s shares.

Correct Answer: B. Maintaining a minimum Capital to Risk-weighted Assets Ratio (CRAR). Regulatory guidelines for dividend payments often include requirements related to the bank’s capital adequacy.

Correct Answer: B. 40%. Guidelines often cap the proportion of profit a bank can distribute as dividends.

Correct Answer: B. To limit banks from engaging in non-banking activities. Restrictions on subsidiaries aim to keep banks focused on core banking and related permissible activities.

Correct Answer: C. 30%. There are limits on a bank’s equity investments in other companies to prevent undue influence or risk concentration.

Correct Answer: C. 51%. Regulations typically require a majority of a bank’s directors to possess relevant knowledge and experience for effective oversight.

Correct Answer: B. Eight years. There is a limit on the tenure of ordinary directors to ensure rotation and fresh perspectives on the board.

Correct Answer: B. The board must be reconstituted. If the board does not meet the regulatory requirements for director qualifications, steps must be taken to rectify the composition.

Correct Answer: B. The central bank can remove and appoint directors. Regulatory authorities have the power to intervene in the composition of a bank’s board if the bank does not comply with reconstitution orders.

Correct Answer: B. Proceedings remain valid despite the defects. Even if there are issues with the board’s composition, the decisions and actions taken by the board are typically considered valid.

Correct Answer: C. From among the bank’s directors. The chairman of a banking company must be appointed from the existing members of its board of directors.

Correct Answer: B. It requires prior approval from the central bank. The appointment of a part-time chairman needs the prior consent of the regulatory authority.

Correct Answer: C. A managing director. If a chairman is not in place, a managing director usually takes charge of the bank’s management.

Correct Answer: B. Special knowledge and practical experience in banking or related fields. Individuals in these key leadership roles must possess relevant expertise.

Correct Answer: B. If they are deemed unfit and proper. The central bank has the authority to mandate the removal of a chairman or managing director if their suitability for the role is questionable.

Correct Answer: C. A reasonable opportunity to be heard. Before ordering removal, the central bank typically provides the individual a chance to present their case.

Correct Answer: C. Remove the person itself and appoint a suitable replacement. The central bank has the power to enforce its removal order and fill the resulting vacancy.

Correct Answer: C. Up to four months. Short-term arrangements are permitted to manage the vacancy in the absence of a permanent appointment.

Correct Answer: B. If the bank fails to fill the vacancy in a timely manner and it’s detrimental to the bank’s interests. The central bank can step in and appoint a chairman or managing director if the bank’s interests are at risk due to a vacancy.

Correct Answer: C. Three years. The appointment of additional directors by the central bank is typically for a specified period, usually renewable.

Correct Answer: B. No, they are typically protected from liability for actions taken in good faith. Additional directors appointed by the regulator are usually granted immunity for actions performed in good faith.

Correct Answer: D. The Financial Services Institutions Bureau (FSIB). This body is tasked with the role of identifying and recommending individuals for key leadership positions in financial institutions.

Correct Answer: B. Persons who are insolvent. Individuals with a history of insolvency are typically restricted from being employed by a banking company.

Correct Answer: C. No, the employment of managing agents is prohibited. Banking regulations explicitly disallow the system of managing agents for banking companies.

Correct Answer: B. They cannot manage the banking company, with some exceptions for a temporary period. There are restrictions on individuals holding directorships in other non-exempt companies from managing a bank, though temporary arrangements might be permissible.

Correct Answer: B. Five years. The term of office for a person managing a bank is typically limited to five years, with the possibility of extension upon regulatory approval.

Correct Answer: B. The power to remove any chairman, director, CEO, officer, or employee under certain conditions. The central bank has significant authority to remove individuals from key positions in a bank if deemed necessary.

Correct Answer: C. No, there is generally no compensation for loss of office in such cases. When the central bank exercises its power to remove personnel, no compensation is typically payable for the termination.

Correct Answer: B. Up to six months, extendable. The central bank has the authority to take over the management of a bank by superseding its board for a limited period, which can be extended.

Correct Answer: C. From among its directors. The regulations stipulate that the chairman of a banking company must be selected from individuals already serving on its board of directors.

Correct Answer: B. Prior approval from the central bank. The appointment of a chairman on a part-time basis requires the advance consent of the regulatory authority.

Correct Answer: C. Managing the entire affairs of the bank. A whole-time chairman is responsible for the overall management and operations of the banking company.

Correct Answer: C. A managing director. When the chairman is unavailable, the management responsibilities often fall to a managing director.

Correct Answer: B. Special knowledge and practical experience in banking or related fields like finance or economics. These key roles require individuals with relevant expertise and experience in the financial sector.

Correct Answer: A. Being a partner in a non-exempt firm. Regulations include restrictions on individuals holding positions or substantial interests in other types of businesses.

Correct Answer: B. If they are deemed unfit and proper to hold the office. The regulatory authority has the power to mandate removal if the individual is considered unsuitable for the position.

Correct Answer: B. Providing the person with a reasonable opportunity to be heard. Natural justice principles require that the individual be given a chance to make a representation before a final decision on removal is made.

Correct Answer: C. Remove the person itself and appoint a suitable replacement. The central bank has the power to enforce its decision and ensure the vacancy is filled by a suitable individual.

Correct Answer: B. The Central Government. An individual removed from these key positions by the central bank has the right to appeal the decision to the Central Government.

Correct Answer: D. Four months. Regulations permit interim arrangements for a limited period to manage the situation arising from a sudden vacancy in the chairman or managing director role.

Correct Answer: C. Up to three years. The central bank’s appointment of a chairman or managing director in specific circumstances is typically for an initial term of up to three years, with the possibility of extension.

Correct Answer: B. No, they are exempt from holding qualification shares. Individuals appointed to these roles, especially those appointed by the regulator, are typically not required to hold shares to qualify.

Correct Answer: B. They override other laws and contracts. The regulations concerning the chairman and managing director positions are given precedence over conflicting provisions in other laws or agreements.

Correct Answer: B. To recommend candidates for whole-time directors and non-executive chairpersons of financial institutions. This body is responsible for suggesting suitable individuals for top leadership positions in regulated financial entities.

Correct Answer: B. In the interest of banking policy, public interest, or the bank’s or depositors’ interests. The central bank can appoint additional directors to safeguard the broader interests of the banking system, the public, the bank, or its depositors.

Correct Answer: B. At the pleasure of the central bank for a period not exceeding three years, renewable. Additional directors appointed by the regulator serve at its discretion for a specified term, which can be extended.

Correct Answer: B. No, they are typically not liable for actions taken in good faith. These directors are usually granted protection from legal liability for actions performed honestly and reasonably in their official capacity.

Correct Answer: B. No, they are typically not counted in such calculations. Additional directors appointed by the regulator are often excluded when determining proportions or ratios related to board composition for other regulatory requirements.

Correct Answer: B. Special knowledge and practical experience in areas like banking, finance, economics, or business administration. The role demands expertise relevant to the financial and business operations of a bank.

Correct Answer: C. No, having a substantial interest in non-exempt companies is a disqualification. Regulations prevent individuals with significant interests in certain other businesses from holding these key positions in a bank.

Correct Answer: B. A managing director is appointed in the absence of a chairman. If the position of chairman is vacant, the role of managing the bank is typically assumed by a managing director.

Correct Answer: B. By the Board of Directors and the central bank. The duties and responsibilities of a part-time chairman are decided collaboratively by the bank’s board and the regulatory authority.

Correct Answer: C. Up to five years. A person removed by the central bank under these provisions can be barred from future management roles in other banks for a specified period.

Correct Answer: C. Up to three years. The initial appointment of a replacement by the central bank is typically for a term not exceeding three years, with the possibility of extension.

Correct Answer: C. RBI’s power to appoint and remove chairman and additional directors. A significant aspect covered is the regulatory authority’s control over these key appointments and removals.

Correct Answer: C. FSIB’s role in recommending directors. The function of the Financial Services Institutions Bureau in suggesting candidates for leadership roles is a relevant topic in this context.

Correct Answer: B. Yes, the central bank has the power to make such appointments in specific situations. The regulator can intervene and appoint a chairman or managing director if the bank’s well-being is negatively affected by a vacancy.

Correct Answer: C. Three years. The initial term for a chairman or managing director appointed by the central bank due to a detrimental vacancy is limited to three years.

Correct Answer: B. Yes, for further periods. The central bank’s appointment of a chairman or managing director in these circumstances can be extended for additional terms.

Correct Answer: B. They are deemed to be a director for the purposes of the regulations. An individual appointed by the central bank to the chairman or managing director role is treated as a director, even if they weren’t one previously.

Correct Answer: C. No, these provisions override other laws and contracts. The regulations governing the chairman and managing director roles have primacy over conflicting legal or contractual provisions.

Correct Answer: C. No, there is generally no compensation for loss or termination due to actions under these provisions. The regulations specify that no compensation is payable when removal or termination occurs under these specific powers.

Correct Answer: C. Personnel management matters. Besides recommending candidates for top positions, the FSIB also provides advice on aspects related to personnel management in financial institutions.

Correct Answer: C. The Banks Board Bureau. The FSIB was established as a successor to the Banks Board Bureau.

Correct Answer: C. By order. The central bank’s appointment of additional directors is typically effected through a formal order.

Correct Answer: C. The tenure can be renewed for further periods of three years each. While the initial term is limited, the appointment of additional directors can be extended for subsequent three-year periods.

Correct Answer: D. The pleasure of the central bank. These directors serve as long as the appointing authority, the central bank, deems it necessary.

Correct Answer: B. Yes, they can be reappointed for further periods of three years. The tenure of additional directors is renewable in segments of up to three years.

Correct Answer: C. No, they are typically not liable for actions taken in good faith. Additional directors appointed by the regulator are generally protected from liability for actions carried out honestly and reasonably in their official capacity.

Correct Answer: B. They are always excluded from the count. Additional directors appointed by the regulator are typically not factored into calculations of the overall number or proportion of directors for other regulatory requirements.

Correct Answer: C. In the interest of banking policy, public interest, or the bank’s or depositors’ interests. The central bank’s power to appoint additional directors is linked to safeguarding broader systemic stability or the interests of the bank and its stakeholders.

Correct Answer: C. No, being a partner in a non-exempt firm is a disqualification. Regulations prohibit individuals associated with certain types of non-exempt firms from holding these key positions in a bank.

Correct Answer: C. No, engaging in other business or vocation is a disqualification. Individuals in these whole-time roles are generally prohibited from pursuing other business activities or vocations.

Correct Answer: B. Eight years. There is a stipulated maximum tenure for ordinary directors on a bank’s board.

Correct Answer: B. Yes, the central bank can suspend in urgent cases. In situations requiring immediate action, the central bank has the power to suspend the individual while their case is being considered.

Correct Answer: B. Yes, after a cooling-off period. While there is a maximum continuous tenure, reappointment is often possible after a mandatory break.

Correct Answer: B. The decisions remain valid despite the defects. Even if there are flaws in the composition of the board, the actions and decisions taken by the board are generally considered legally binding.

Correct Answer: B. Yes, it can be a part-time position with regulatory approval. The regulations allow for a part-time chairman, subject to obtaining the necessary consent from the central bank.

Correct Answer: B. Six months. The initial period for which the central bank can take over the management by superseding the board is limited to six months, although this period can be extended.