CAIIB BRBL Module A Unit 4 : Returns, Inspection, Winding Up, Mergers & Acquisitions

18/10/2023

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CAIIB Paper 4 BRBL Module A Unit 4 : Returns, Inspection, Winding Up, Mergers & Acquisitions (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Returns, Inspection, Winding Up, Mergers & Acquisitions”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module A (REGULATIONS AND COMPLIANCE) Unit 4 : Returns, Inspection, Winding Up, Mergers & Acquisitions, Aspirants must go through this article to better understand the topic, Returns, Inspection, Winding Up, Mergers & Acquisitions and practice using our Online Mock Test Series to strengthen their knowledge of Returns, Inspection, Winding Up, Mergers & Acquisitions. Unit 4 : Returns, Inspection, Winding Up, Mergers & Acquisitions

Introduction

Banking companies have to prepare their balance sheet and accounts annually as provided in the Banking Regulation Act.
The accounts have to be audited by duly qualified auditors as stipulated in the Act. The audited balance sheet and accounts have to be submitted as returns to the Reserve Bank and copies thereof have to be submitted to the Registrar of Companies.
The Banking Regulation Act also provides for inspection and scrutiny of the books and accounts of banking companies. The Board for Financial Supervision has been set up for this purpose.
The Central Government is authorized to acquire the assets of banking companies and order the amalgamation of any banking company with another banking company. The Reserve Bank has the power to apply to the High Court for the winding up of banking companies.

Annual Accounts and Balance Sheet

All Banks whose shares are listed with Stock Exchanges are required to publish their unaudited quarterly results as per format prescribed by the SEBI.
Every banking company has to prepare its balance sheet and profit and loss account as stipulated in Section 29 of the Banking Regulation Act.
The balance sheet and profit and loss account of a banking company incorporated in India has to be signed by the manager or principal officer of the company and at least three directors. In the case of foreign banks, the manager or the agent of its principal office in India can sign.
Clause 41 of the SEBI Listing Agreement requires listed Companies to furnish unaudited financial results on a quarterly basis after a limited review conducted by the auditors.
Publication of Accounts and Balance Sheet: The accounts and balance sheet prepared under Section 29 of the Banking Regulation Act along with the auditors’ report have to be published. The publication has to be made in a newspaper, which is in circulation at the place where the banking company has its principal office, within a period of six months from the end of the period to which the account and balance sheet relate.
Submission to Reserve Bank: Every banking company has to submit three copies of its balance sheet and profit and loss account to the Reserve Bank within three months from the end of the period to which they relate.
Furnishing of Accounts and Balance Sheet to Registrar: Section 220 of the Companies Act 1956 (Section 129 of the Companies Act 2013) provides for submission by companies of copies of accounts and balance sheet along with the auditor’s report to the Registrar of Companies.

Audit And Auditors

Powers and Functions of Auditors:

In the case of banks incorporated in India, the auditor has to give certain additional information in his audit report

Whether or not information and explanation, required by him were found to be satisfactory
Whether or not the transactions of the company, as noticed by him were within the powers of the company
Whether or not returns from branches were adequate for the audit
Whether or not profit and loss account shows a true picture of the profit and loss for the period covered
Any other matter, which the auditor considers necessary to bring to the notice of the shareholders of the company.

Special Audit:

Reserve Bank is empowered under Section 30(1B) of the Banking Regulation Act to order a special audit of the accounts of any banking company.
Such an order may be passed when the Reserve Bank is of the opinion that special audit is necessary in the public interest or in the interest of the banking company or its depositors.
The bank may by the same order or by a different order appoint a duly qualified auditor for this purpose or may direct the auditor of the banking company himself to conduct such a special audit.
The auditor has to make a report of such an audit to the Reserve Bank and also give a copy thereof to the banking company. The expenses in relation to the special audit have to be borne by the banking company.

Submission Of Returns

Return on Liquid Assets:

Every banking company has to submit a return of its liquid assets under Section 24(3) of the Banking Regulation Act.
The return has to be submitted within twenty days from the end of the month to which it relates.
The return has to be in the form prescribed under Rule 13A of the Banking Regulation (Companies) Rules, 1949.
The return should contain particulars of assets and the demand and time liabilities, as at the close of business of each alternate Friday.

Monthly Returns:

Every month, a banking company has to submit to the Reserve Bank a return under Section 27 of the BR Act, showing its assets and liabilities in India as at the close of business on the last Friday of the previous month.
Such a return has to be submitted before the close of the month succeeding to which it relates. The return has to be in the form prescribed under Rule 14A of the Banking Regulation (Companies) Rules, 1949.

Accounts and Balance Sheet:

The annual accounts and balance sheet have to be submitted to the Reserve Bank within three months from the end of the period to which they relate.

Return of Assets in India:

A banking company has to submit to Reserve Bank under Section 25(1) of the Banking Regulation Act, a quarterly return regarding its assets in India. The return has to be submitted within one month of the end of the quarter.
The return has to be filed in the form prescribed in the Rule 14A of the Banking Regulation (Companies) Rules.

Return of Unclaimed Deposits:

Under Section 26 of the BR Act, a banking company has to file within thirty days of the close of each calendar year a return on unclaimed deposits with the RBI. This has to be submitted as specified in the Rule 14B of the Banking Regulation (Companies) Rules.
Under the Amending Act of 2013, section 26A has been introduced to establish the “Depositor Education and Awareness Fund”

Return of Cash Reserve of Non-Scheduled Banks:

Every banking company, not being a scheduled bank, has to furnish a return to the Reserve Bank under Section 18(1) of the BR Act relating to cash reserve.
The return has to be submitted before the twentieth day of every month showing the amounts held on the alternate Fridays during a month along with the particulars of demand and time liabilities in the form stipulated in the Rule 13A of the BR (Companies) Rules.

Return by Scheduled Banks:

Under Section 42 of the RBI Act, scheduled banks have to submit returns to the Reserve Bank of their demand and time liabilities (Form-I) as specified in the sub-Section (2) thereof.

Preservation Of Records and Return Of Paid Instruments

Preservation of Records under Banking Regulation Act 1949

IBA a clarified that the extant practice of preserving various records such as ledgers, registers, instruments, vouchers, etc. for a period of 5 to 8 years as prescribed under the Banking Companies (Period of Preservation of Records) Rules, 1985 may be continued.
The RBI however has the powers, having regard to the factors specified in Section 35A(1) of the BR Act, to direct any bank to preserve any books, accounts or registers for a longer period than the period specified under the rules, by an order in writing.

Preservation of Records under Prevention of Money Laundering Act 2002 (PMLA):

That Banks/FIs should introduce a system of maintaining proper record of transactions prescribed under PML Rules 2005 in respect of the following:

All cash transactions of the value of more than 10 Lakh or its equivalent in foreign currency
Series of all cash transactions individually valued below Rs. 10 Lakh, or its equivalent in foreign currency which have taken place within a month and if the monthly aggregate exceeds rupees ten lakhs or its equivalent in foreign currency.
All transactions involving receipts by non-profit organizations of value more than Rs. 10 lakh or its equivalent in foreign currency
All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable security or a document has taken place facilitating the transaction.
All suspicious transactions, whether or not in cash.

Board For Financial Supervision

In November 1994, the Board for Financial Supervision (BFS) was set up with the objective of ensuring dedicated and integrated supervision over credit institutions of all types.

The composition of the Board is as follows:

Governor of the Reserve Bank of India is the chairman of the board.
Deputy Governors of the Reserve Bank of India: one of the deputy Governors (usually the Deputy Governor in charge of supervision) is nominated by the Governor as the full time vice chairman.
Four directors from the central board of the Reserve Bank nominated by the Governor as members.
The Board is required to meet normally once every month. Three members, of whom, one shall be the chairman or the vice chairman shall form a quorum for the meeting. It deliberates on inspection reports, periodic reviews related to banking and non-banking sectors.

Daksh:

Reserve Bank’s Advanced Supervisory Monitoring System. This is a web-based end-to-end workflow application through which RBI shall monitor compliance requirements in a more focused manner with the objective of further improving the compliance culture in Supervised Entities (SEs) like Banks, NBFCs, etc.
This application is expected to be used extensively by the regulator in its Supervisory Function carried out under the BFS.

Acquisition Of Undertakings

The Central Government can acquire the undertakings of banking companies in certain cases as mentioned in Section 36AE of the Banking Regulation Act.

If, upon receipt of a report from the Reserve Bank, the Central Government is satisfied that a banking company—

Has, on more than one occasion, failed to comply with the directions given to it in writing under section 21 or section 35A
Is being managed in a manner detrimental to the interests of its depositors. If it is necessary to acquire the undertaking of such banking company, the Central Government may, after such consultation with the Reserve Bank as it thinks fit, by notified order, acquire the undertaking of such company.

Amalgamation Of Banks

Voluntary Amalgamation:

A banking company may be amalgamated with another banking company under Section 44A of the Banking Regulation Act.
For this purpose, a scheme has to be prepared, containing the terms of such an amalgamation in a draft and placed before the shareholders of the two companies separately.
The scheme has to be approved by a resolution passed by majority of members representing two-thirds in value of the shareholders of each company present in person or by proxy.
After the scheme is approved by the requisite majority, the scheme has to be submitted to the Reserve Bank for sanction. The Reserve Bank may also direct that the amalgamated company will stand dissolved from any specified date and intimate the Registrar of Companies.

Amalgamation by Government:

The Central Government is empowered to order amalgamation of two banking companies under Section 396 of the Companies Act, 1956. However, such power has to be exercised only after consultation with the Reserve Bank.

Moratorium and Amalgamation:

The Reserve Bank is authorized under Section 45 of the Banking Regulation Act to apply to the Central Government for an order of moratorium in respect of any banking company where it appears to it that there is good reason to do so.
During the period of moratorium, the banking company shall not make any payment to depositors or discharge any liabilities or obligations.

Scheme of Amalgamation:

During the period of moratorium or at any other time, Reserve Bank may prepare a scheme either for reconstruction of the banking company, or for amalgamation of the banking company with any other banking institution.
A copy of the draft of the scheme prepared by the Reserve Bank has to be sent to the Government and also to the banking company, transferee bank. On the Central Government sanctioning the scheme, it becomes binding on the banking company, transferee bank and the members.

Winding Up Of Banks

Winding up is thus synonymous with liquidation and is mainly the process of dissolution of a Bank, when it ceases to do business as usual, its sole purpose being to sell off assets, pay off creditors, and distribute any remaining amount left to shareholders.
The High Court shall order the winding up of a banking company in the following circumstances mentioned in Section 38 of the Banking Regulation Act overriding anything which may be contained in the Companies Act, in this regard They are:
The banking company is unable to pay its debts
An application for winding up has been made by the Reserve Bank under Section 37 or Section 38 of the Act.

Official liquidator: In terms of Section 38A of the BR Act, “(1) There shall be attached to every High Court a Court liquidator to be appointed by the Central Government for the purpose of conducting all proceedings for the winding up of banking companies and performing such other duties in reference thereto as the High Court may impose.

The liquidator has to make a preliminary report to the High Court within two months of the winding up order on the availability of assets for making preferential payments under Section 327 of the Companies Act 2013 and for discharging liabilities to depositors and other creditors.
Preferential payments referred to in Section 327 of the Companies Act, in respect of which, claims have been made within one month of service of notice, get the first preference.

After that, depositors in savings bank account up to Rs. 250 and then other depositors up to Rs. 250 get priority over all other creditors. After making these payments, the balance available will be utilized for payment to general creditors and then for payment of further amounts due to the depositors.

Apart from the provision for compulsory winding up as above, Section 44 provides for voluntary winding up by banking companies. However, no such winding up will be permissible unless the Reserve Bank certifies that the bank will not be able to pay in full all its debts as they accrue.

Penalties For Offences

Penalties under the RBI Act:

Banking companies have to make applications and furnish returns, statements, etc., under different provision of the Act, regulations, orders, directions. The making of any statement which is false in any particular material, knowing it to be false or willfully omitting to make any material statement, is punishable with imprisonment up to a period of three years and also a fine.
Failure to produce any books, accounts or other documents or statements, or information which a person is duty bound to make under the Act, or any order, regulation or direction is punishable with fine up to Rs. 100,000 for each offence. For continuing offences, there is a provision for fine of Rs. 5000 for each day when the offence continues.

Penalties under the BR Act: Section 46 of the BR Act deals primarily on the penalties which may be imposed on Banks under the Act.

Any false statement willfully made in any return, balance sheet or other document or in information required to be given under the Act, is punishable. Similarly, willful omission to make any material statement is also punishable. In both cases, punishment is up to three years imprisonment and fine which may extend to Rs. 1 crore or both.
If any person fails to produce any book, account or other document may be punishable with a fine which may extend to Rs. 20 lakh in respect of each offence, and if he/she persists in such refusal, to a further fine which may extend to 50 thousand for every day during which the offence continues.
If any other provision of the Act is contravened or if any default is made by any person, such person shall be punishable with fine which may extend to Rs. 1 crore or twice the amount involved in such contravention or default whichever is more
Under Section 47, the offences are cognizable only by a metropolitan magistrate, judicial first class or a court superior thereto on a complaint by an officer of the Reserve Bank and in some cases by the National Bank.

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CAIIB Paper 4 Module A Unit 4- Returns, Inspection, Winding Up, Mergers & Acquisitions (Ambitious_Baba)