BRBL CAIIB notes – Unit 4

Unit-4 Returns, Inspection, Winding Up, Mergers & Acquisitions

Annual accounts and Balance sheet

1. U/S 29 of B R Act, all banks are to prepare a balance sheet and a profit and Loss

account on the form as per Schedule III, as on last day of each financial years (announced by Central Govt. – presently 31st March)

2. Balance sheet and profit/loss account is to signed by at least 3 directors where no. is more than 3 or all directors, where the no. is up to 3.
3. U/s 30, balance sheet and P/L account is to be audited by a qualified account.

U/s 30 (IB), RBI can order special audit of accounts. Auditor Liable, if bank is found insolvent afterwards.

4. U/s 31, balance sheet and P/L account are to be published in a newspaper in circulation at place of principal office of the bank, within 6 months.
5. Banks that are listed on stock exchange have to publish their un-audited quarterly results as per SEBI prescribed Performa.
6. Banks are to furnish to RBI 3 copies of balance sheet and P/L account within 3 months. Period can be extended by RBI by another 3 months.
7. U/s 32, banking companies are to furnish 3 copies of balance sheet and P/L account to Registrar of Companies.

Returns to RBI

1. Monthly Return on liquid assets U/s 24 (3) of B R Act, banks are to submit return within 20 days from end of month, to which it relates.
2. Monthly Return of assets and liabilities in India : U/s27 of B R Act, monthly return as on last Friday to be submitted before close of the next month.
3. Quarterly return of assets in India U/s 25 (1) B R Act to be submitted within one month on form 14A.
4. Yearly return on unclaimed deposits U/s 26 of BR Act to be submitted within 30 days.
5. Accounts and balance sheet : To be submitted within 3 months from close of financial year.
6. Fortnightly return on CRR :U/s 42 of RBI Act to be submitted within 7 days on form No. 20A.

Record preservation & return of paid instruments

1. Preservation of records: U/s 45Y of B R Act, Central Govt. can make rules (Banking Companies Preservation of Records Rules 1985) specifying the period of preservation of books, accounts and other documents.
2. Banks also to maintain record of transactions at least for 5 years (from date of transaction) , as per requirement of PML Act.
3. Return of paid instruments : U/s 45Z of B R Act, banks can return paid instruments to their customers even before period specified for preservation of records, by keeping a true copy.

Inspection and scrutiny

Inspection

• U/s 35 B R Act, RBI has powers to conduct inspection of banks.
• Central Govt. can also direct RBI to carry inspection of banks. Copy of such report to be sent to Govt.
• Inspecting officers are authorised to examine any director/officer of the banking company on oath.
• U/s 35(1A), RBI can conduct scrutiny of affairs and books of a banking company.

Power of Central govt.:

• In the interest of depositors, the govt. can prohibit the banking company from receiving fresh deposit

OR

• direct RBI to apply to winding up of banking company (U/S 38 BR Act).

Acquisition by Govt.

Under Sec 36AE of B R Act. Govt. can acquire a banking company, on receiving report from RBI if the banking company:

1. failed to comply with RBI directions on more than one occasion
2. is managed in a manner detrimental to interest of depositors.

On acquisition, all the assets and Liabilities of such bank are transferred to Central Govt.

 U/s 36AF, Central govt. can make scheme for acquired bank.

 U/s 36AG, the shareholders of acquired bank have right to get compensation.

Amalgamation of Banks

• Voluntary amalgamation: U/s 44A of B R Act, a banking company may be amalgamated with another banking company, after approval of shareholders (by 2/3rd majority). It requires RBI approval.
• Amalgamation by Govt.: U/s Companies Act, Central govt. has power to order amalgamation of 2 banking companies in consultation with RBI.
• Moratorium and amalgamation: U/s 45 of B R Act, RBI can apply to Central Govt. for moratorium up to 6 months restricting banking company to make payment to depositors.
• Scheme of amalgamation : During moratorium period, RBI may prepare a scheme for reconstruction of amalgamation.
• Such scheme is to provide for continuation of all workmen and other staff on the same terms and conditions.
• Sanction of scheme by Govt.: Such scheme is to be placed before Central Govt. for approval. If it is approved, it becomes binding on all concerned.

Winding up of banks

• U/s 37 (BR Act), a banking company can apply to High Court for moratorium up to 6 High court can appoint a special officer to take control of assets and books.
• RBI may apply to High Court for winding up.
• U/s 38, High Court may order winding up if it is failing to pay its debts or application is made by RBI u/s 37 or 38.
• RBI is to apply U/s 38, if directed by Central Govt. to apply for winding up.
• Sec 38A of BR Act provides for appointment of a Liquidator by Central Govt., who is attached to High Court.
• U/s 39, on RBI application, the liquidator can be RBI, SBI or any other bank.
• Preferential payments: U/s 43A, preferential payment shall be as per Sec 320 of Companies Act 2013 to those who made application within one month. After that to saving bank depositors up to Rs.250 or his balance, whichever is lower and then other depositors up to Rs.250.
• a Preferential payment provisions are not applicable for depositors covered by DICGC guarantee cover.

Penalties for Offences

Under RBI Act (Chapter V)

• Penalty for false information in the form of fine and imprisonment up to 3 years.
• Failure to produce books or contravention of provisions of the Act: Rs.2000 (Rs.100 per day for continuance).

Under B R Act (Sec 46)

• Failure to produce books: Rs.2000 (Rs.100 per day for continuance).
• Acceptance of deposit after prohibition: Double the amount of such deposit.
• Contravention of provision: Up to Rs.50,000 (Rs.25O0 per day for continuance) or double the amount of contravention.
• U/s 47A RBI can impose penalties for default or contravention.

Dear CAIIB Aspirants,

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