Banking · Banking Regulation Act
A foreign bank operating in India under-reports its Net Demand and Time Liabilities (NDTL) by excluding key components, thereby maintaining a lower Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). Additionally, it liquidates its unencumbered approved securities deposited under Section 11 of the Banking Regulation Act 1949 without prior approval. What is the legal stance of the RBI in this scenario?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Marginal shortfalls in SLR are always waived for the first three years of a bank's operation in India, and margin money is considered an 'Asset' rather than a 'Liability'.
- 2The RBI must seek permission from the foreign bank's home regulator before imposing any penalty in India, and unclaimed deposits are not part of NDTL.
- 3The bank is liable for penal interest under Section 42 of the RBI Act for CRR default, and the shortfall in Section 11 deposits is a violation that can lead to license cancellation under Section 22 of the BR Act.✓
- 4The RBI cannot penalize the bank because foreign banks are exempt from Section 11 if their global capital is high, and NDTL excludes margin money.
Correct answer
The bank is liable for penal interest under Section 42 of the RBI Act for CRR default, and the shortfall in Section 11 deposits is a violation that can lead to license cancellation under Section 22 of the BR Act.
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