The Reserve Bank of India regulates the commercial banks in matters of:
- 1.liquidity of assets
- 2.branch expansion
- 3.merger of banks
- 4.winding-up of banks
Select the correct answer using the codes given below:
Answer & explanation
Answer: (d) 1, 2, 3 and 4
The Banking Regulation Act, 1949 gives the RBI a regulatory role in all four areas. It prescribes the liquid assets banks must hold (SLR), and its prior approval is needed for new branches. It can approve bank amalgamations, and a High Court must order a bank wound up when the RBI applies for it.
- ✓ 1. Section 24 of the Banking Regulation Act requires banks to hold liquid assets. The RBI prescribes and monitors this Statutory Liquidity Ratio (SLR) and decides which securities count as eligible assets.
- ✓ 2. Under Section 23, a bank cannot open a new place of business in India or abroad without the RBI's prior approval. Nor can it shift an existing one outside the same city, town or village without that approval.
- ✓ 3. Under Section 44A, the RBI has discretionary power to approve the voluntary amalgamation of two banking companies.
- ✓ 4. Under Section 38, the High Court shall order the winding up of a banking company if the RBI has applied for it under Section 37. The RBI therefore plays a regulatory role in winding up banks.
Remember · Under the Banking Regulation Act, 1949, the RBI regulates bank liquidity (s.24), branch opening (s.23) and amalgamation (s.44A). It can also seek winding up of a bank through the High Court (s.38).
Sources
- RBI Master Circular on Branch Authorisation (Section 23, Banking Regulation Act, 1949) ↗ “banks cannot, without the prior approval of the Reserve Bank of India (RBI), open a new place of business in India or abroad”
- RBI Master Direction – Amalgamation of Private Sector Banks, Directions, 2016 ↗ “The Reserve Bank has discretionary powers to approve the voluntary amalgamation of two banking companies under the provisions of Section 44A of the Banking Regulation Act, 1949.”
- RBI circular – Section 24 and Section 56 of the Banking Regulation Act, 1949 – Maintenance of Statutory Liquidity Ratio (SLR) ↗ “the SLR securities acquired from RBI under Liquidity Adjustment Facility (LAF) shall be considered as eligible assets for SLR maintenance from October 3, 2016.”
- The Banking Regulation Act, 1949 (text hosted by NABARD), Section 38 ↗ “the High Court shall order the winding up of a banking company–– (a) if the banking company is unable to pay its debts; or (b) if an application for its winding up has been made by the Reserve Bank under Sec. 37”
Question: UPSC Civil Services (Preliminary) 2013, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). ·
