Under Section 12 of the Banking Regulation Act 1949, what is the minimum ratio between authorised, subscribed and paid up capital of a banking company?

Introduction / Context:
Capital structure requirements for banks are important because banks handle public deposits and play a critical role in the financial system. Section 12 of the Banking Regulation Act 1949 in India lays down conditions regarding authorised, subscribed and paid up capital of banking companies. Examinations related to banking law and practice often include a question on the minimum ratio specified between these three components of capital.

Given Data / Assumptions:

• The law in question is Section 12 of the Banking Regulation Act 1949.
• The focus is on the ratio of authorised capital, subscribed capital and paid up capital.
• Options present different numerical ratios for comparison.
• The question asks for the minimum ratio prescribed, not any optional structure.

Concept / Approach:
Authorised capital is the maximum share capital a company is permitted to issue as per its constitutional documents. Subscribed capital is the part of authorised capital that investors have agreed to take up. Paid up capital is the portion of subscribed capital that has been actually paid by shareholders. Section 12 stipulates that subscribed capital should not be less than half of authorised capital and paid up capital should not be less than half of subscribed capital and not less than one fourth of authorised capital. Translating these conditions into a ratio gives authorised : subscribed : paid up as 4 : 2 : 1 at minimum. The correct option is therefore the one that shows this ratio.

Step-by-Step Solution:
Step 1: Let authorised capital be represented by 4 units. Step 2: If subscribed capital must be at least half of authorised, the minimum subscribed capital is 2 units. Step 3: If paid up capital must be at least half of subscribed, then minimum paid up capital is 1 unit. Step 4: Check that this paid up capital is also at least one fourth of authorised, which is satisfied because one unit is one fourth of four. Step 5: Express the relationship as a ratio of authorised : subscribed : paid up equals 4 : 2 : 1 and select this from the options.

Verification / Alternative check:
To verify with a numerical example, suppose the authorised capital is 40 million units. Under the rule that subscribed capital must be at least half of that, minimum subscribed capital is 20 million. Paid up capital must be at least half of subscribed, which is 10 million, and also at least one fourth of authorised, which is again 10 million. Thus, 40, 20 and 10 satisfy all conditions, giving a ratio of 4 : 2 : 1. Any ratio that does not maintain these relationships would violate one or more of the legal requirements, confirming that 4 : 2 : 1 is the correct minimum ratio.

Why Other Options Are Wrong:
Option A, 2 : 2 : 1, implies subscribed capital equal to authorised capital, which is allowed but does not represent the minimum ratio described in the Act. Option C, 2 : 1 : 4, is impossible because paid up capital cannot exceed subscribed capital in that way. Option D, 1 : 1 : 1, suggests that authorised, subscribed and paid up capital are always equal, which is not the condition imposed. Option E, 10 : 5 : 1, would mean paid up capital is only one tenth of authorised capital, which fails the requirement that paid up must be at least one fourth of authorised capital.

Common Pitfalls:
Candidates sometimes memorise the figure 4 : 2 : 1 without understanding the underlying logic, which makes it easy to confuse with other ratios in regulatory material. Another pitfall is mixing up terms authorised, subscribed and paid up, especially when similar terms appear in company law outside the banking context. It is helpful to link each term to a simple picture authorised as the maximum allowed, subscribed as what investors promise, and paid up as what they actually pay and to see how the legal requirements keep these levels reasonably close for banks.

Final Answer:
4 : 2 : 1.