BANKING REGULATION ACT 1949

GROUP-6GROUP MEMBERS –SANIL JAMESAAKAMSH.S.NAIRELDHO MATTAIDHANYAVEENAGINAL

BANKING COMPANIES IN INDIA IS GOVERNED BY TWO MAIN LEGISLATIONS :

Banking Regulation Act 1949

The reserve Bank of India Act 1934

BANKING REGULATION ACT-1949

BANKING DEFINED :

“accepting for the purpose of lending or investment ,of deposits of money from the public ,repayable on demand or otherwise ,and withdrawal by cheque ,draft ,order or otherwise “

Main Objective of the Act

To ensure sound banking through regulation covering the opening of branches and maintenance of liquid asset .

Sec-6 Permitted business of Banks

• Banking for borrowing ,raising or taking up of money ,selling ,collecting and dealing in bills of exchange ,promissory notes, railway reciepts.Dealing in shrares ,bonds,debentures.

• Acting as agents for government

• Contracting for public and private loans and issuing the same.

• Managing ,selling and realizing any property which may come into the possession of the company .

• Undertaking and executing trusts • Establishing and supporting or aiding in the

establishment and support of associations ,funds ,trust.

• Dealing with Acquisition, construction and maintenance of building

Business prohibited for Banks

• No banking company shall directly or indirectly deal in the buying and selling or bartering of goods or engage in any kind of trade or buy.

SEC -19 RESTRICTION ON SUBSIDIARY COMPAANIES

Banking company shall not form any subsidiary company EXCEPT

UNDER FOLLOWING CONDITIONS

1. Sub-section (1) of sec -6 is permissible

2. With the permission in writing of RBI

3. Reserve bank may with prior approval of the central government (To spread the banking in India)

SEC -22 LICENSING OF BANKING COMPANIES

RBI issues license to a banking company after inspecting the books of the banking company .

And after satisfaction of the following conditions.

Company is in a position to settle all the claims

Company should not act against the interest of the depositors

• The company should have adequate capital structure and earning prospects

• Public interest should be saved

• To follow any other condition the bank has to take prior permission of RBI.

RBI would cancel the license if

• The company ceases to carry out business in India

• If the company fails to comply with the condition imposed upon it under sub sec (1)

• Unfulfillment of the conditions stated in sec(3)

Sec-23 OPENING OF BRANCHES

• To obtain permission from the RBI for opening up branches both in domestic and foreign

Exceptions• A change of location within same city,town or

village • A temporary business service offered by a

banking company (mela,conference)

Conditions for opening up branches

• The general character of the management

• The financial position of the bank

• Maintenance of capital adequacy norms and earning prospects of the bank

• Maintenance of public interest in opening up new branches

Sec-27 RETURNS

• Every banking company required to submit a monthly statement in a prescribed format by RBI showing its assets and liability position in the last Friday of the month.

Sec-35 INSPECTION

• RBI possess the right to call for an inspection of any banking company and its books and accounts

• To safeguard the interests of the depositors or its shareholders

Subsection (1)• Empowers RBI to conduct scrutiny by any one

or more officials of RBI of the affairs of banking company and its books and accounts

• If the inspection is carried out at the instance of Central Government ,then the report is to be sent to Central Government

If Central Government is in the opinion that the banking business is being conducted detrimental to the interests of depositors then it may instruct to:

Prohibit the banking company from receiving deposits

Direct the Reserve Bank to apply under Section 38 for the winding up of the banking company

Sec-20 RESTRICTION ON LOANS & ADVANCES

• No banking company shall:-Grant loans and advances on the security of its own

shares ,orEnter into any commitment for granting any

loan/advance to or on behalf of—i) Any of its directorsii)Directors interested as partner,manager,employee

or guarantoriii)Any individual in respect of whom any of its

directors is a partner/guarantor

Sec-21 POWER OF RESERVE BANK TO CONTROL ADVANCES BY BANKING COMPANIES

• Act gives RBI enough power to issue directives to the banking companies to regulate advances

• RBI may determine the policy to check speculation and rising prices which the banking companies shall bound to follow to disburse loans

• RBI may indicate the following in that directives:-

a)The purpose for which advances may or may not be made

b)Margins to be maintained in respect of secured advances

c) The max. amount of advances or other financial accomodation

Contd:-

d) Maximum amount up to which ,guarantees may be given by a banking company on behalf of any one company,firm,association of persons or individual

e) The rate of interest and other terms and conditions on which advances may be made/guarantees may be given

Sec-10 MANAGEMENT OF BANKING COMPANIES

• Prohibited employment of managing agentsSection 10A:-51% of directors in every board of directors of

banking companies shall satisfy the following: shall have knowledge/practical experience in

respect of one or more of the following matters namely-accountancy,banking,agriculture & rural economy,co-operation,law,finance,ssi

be proprietors of any trading,commercial or industrial concern,not being a small scale industrial concern

Shall not have substantial interest in,or be connected with,whether as employee,manager or managing agent

Sec 10B APPOINTMENT OF CHAIRMAN

• Every banking company must have a Chairman• Chairman must be in hole time employment

of the banking company• His period in office cannot exceed more than 5

yrs though he can be reappointed

A person will be disqualified as a chairman if he:

a) Is a director of any company other than a company referred to in the proviso to subsection(2)

b) Is a partner of any firm which carries on any trade ,business or industry or

c) Has substantial interest in any other company or firm

d) Is directed in any other business or vocation

• Directors/chairman appointed under sec-10A and 10B by RBI can hold office of more than one banking company

CONCLUSION

• The Banking Regulation Act has been able to ensure effective supervision of banking in our country to a large extent

• Failures of banks though small in number in the last decade point to the need for further strengthening of regulatory frame work

• Ongoing globalization provides opportunities and challenges for the growth of banking industry in India

THANK YOU