Inspection :

As per Section 35 of the Banking Regulation Act, the Reserve Bank of India is empowered to conduct an inspection of any banking company. After conducting the inspection of the books, accounts and records of the banking company a copy of the inspection report to be furnished to the banking company. The banking company, its directors and officials are required to produce the books, accounts and records as required by the RBI inspectors, also the required statements and/or information within the stipulated time as specified by the inspectors.

Government’s role:

The Central Government may direct the Reserve Bank to conduct inspection of any banking company. In such cases, a copy of the report of inspection needs to be forwarded to the Central Government . On review of the inspection report, the Central Government can take appropriate action. In the opinion of the Central Government if the affairs of the banking company is not being carried out in the interests of the banking company, public and or depositors, the Central Government may : (i) prohibit the banking company to accept fresh deposits, (ii) direct the Reserve Bank to apply for winding up of the banking company under the provisions of the Banking Regulation Act. Before taking action, the Government has to give an opportunity to the banking company to explain their stand. Based on the response, the Government can initiate appropriate action as required.

Scrutiny:

Apart from inspecting the books and accounts of the company, the Reserve Bank can conduct scrutiny of the affairs and the books of accounts of any banking company. Like in the case of inspection, the Reserve Bank can handle the scrutiny as required.