Section 45 of BRA : Section 45: Power Of Reserve Bank To Apply To Central Government For Suspension Of Business By A Banking Company And To Prepare Scheme Of Reconstitution Or Amalgamation

Explanation using Example

Imagine that XYZ Bank has been facing serious financial difficulties due to poor management and non-performing assets. The Reserve Bank of India (RBI), concerned about the potential impact on the country's banking system and the interests of the depositors, decides that immediate action is necessary to protect the public interest and the interests of the depositors.

The RBI, therefore, applies to the Central Government for an order of moratorium on XYZ Bank, effectively pausing all legal actions against the bank and giving it temporary relief from its obligations. The Central Government, after reviewing the application, grants a six-month moratorium.

During this moratorium, XYZ Bank is restricted from making any payments to its depositors or settling any liabilities. Meanwhile, the RBI starts preparing a scheme for the bank's reconstitution or its amalgamation with another healthier banking institution, ABC Bank.

The proposed scheme includes measures to ensure that the interests of the depositors are protected, such as the transfer of assets and liabilities from XYZ Bank to ABC Bank. It also outlines the terms for the employees of XYZ Bank, ensuring their continued employment under similar conditions, and provides for necessary changes to the management structure to improve the bank's governance.

After considering feedback from the involved parties, the RBI finalizes the scheme and presents it to the Central Government, which sanctions it with some modifications. The scheme becomes binding on both banks, their employees, depositors, and other stakeholders from the date specified by the government.

As a result of this sanctioned scheme, XYZ Bank successfully amalgamates with ABC Bank, which takes over XYZ's assets and liabilities, ensuring the stability of the banking system and safeguarding the interests of the depositors and employees.