Banking Regulation Act,1949

Objectives of BR Act
Regulation of business of banking cos

Control over management of banking

business Suspension and winding up of banking business

Banking
Banking means accepting of deposit of

money from public repayable on demand or otherwise and withdrawal by cheque, draft or otherwise Deposit to be used for lending or investment sec. 5(b)

Business of banking
Primary business-acceptance of deposits

Borrowing of money
Lending secured or unsecured Investments in all kinds of securities Dealing with bills of exchange, p- notes Dealing in forex, bullion, stocks, bonds Letters of credit

Business of banking
Safe deposit vaults

Public/ private issue of Govt, corporate

securities Guarantees and indemnities All other business conducive /incidental to above Any other business notified by Central Govt.

Bank, Banker, Banking, Banking Co

Above names can be used only by banking

company Banking co has to use one of above No individual or association can use these names Any association of Banks can use s.7

Minimum Capital
Foreign Bank Rs. 20 lacs

Indian Bank Rs. 10 lacs

Subscribed capital = authorised capital Paid up capital

= subscribed capital (s. 11,12)

Voting Rights of shareholder

No limit on shareholding of a person
Max 10 % of total voting rights PSBs - 1%

s.12(2)

Reserve Fund
Min 20 % profit each year to be transferred to

Reserve Fund CG ( on recommendations of RBI) can waive this condition, on adequacy of paid up capital +reserves
s.17

Bank subsidiaries
Can be formed only for business permissible

for banking cos For business exclusively outside India (with RBI approval) For any other purpose prior approval of CG/RBI reqd. s.19

Restriction on Loans / advances

To Directors

On security of own shares

Any firm in which Director is partner or

employee Any co in which Director is director or employee s.20

RBI power to control Advances

RBI has power to formulate policy on Banking

advances When expedient in interest of public, depositors It may relate to purpose ,margins, amount, rate of interest Banks bound to follow s.21

Power to give directions to Banks

In public interest

In the interest of depositors

In the interest of banking policy Secure proper management of Bank Banks bound to comply with directions

sec. 35 A

Rate of interest
No judicial scrutiny on ground of being

excessive Interest rates on advances deregulated

s.21A

SLR

RBI prescribes from time to time Max. 40% of DTL (present 24%) To be maintained in approved securities Monthly return to be submitted to RBI SLR is in addition to CRR (6%) Shortfall penal interest at 3 % above Bank Rate Consecutive default- 5% s. 24

SLR approved assets

Cash

Surplus cash under CRR

Gold Approved securities (unencumbered)

T- Bills, G-sec, State Dev Loans

CRR RBI Act

Each Bank to maintain cash balance with RBI

at prescribed percentage of DTL in India (present- 6%)- as average daily balance

No interest paid on CRR balance

s.42(1)

CRR
If shortfall, penal interest at 3% over Bank

rate ( 5% from next fortnight) Liabilities excluded- capital, reserves, loans from RBI, PSBs, PFIs, SBI group, Banks, FIs

Assets in India
Min 75 % of DTL to be India

As on last Friday of each quarter

Monthly return of Assets and Liabilities to be

submitted to RBI s.25

Balance Sheet

B/S and P/L as per Third Schedule Audit by qualified auditor RBI approval reqd. for Auditor To be signed by three Directors To be published Copy to ROC RBI can direct special audit of any transaction (s.29)

Inspection by RBI
RBI can conduct inspection of any Bank CG may also direct RBI to conduct inspection

of any Bank ( include. Foreign Bank) On examination of report, if found detrimental to interests of public/ depositors, CG can order Bank to stop accepting fresh deposit or winding up s.35

CG power to acquire Bank

On RBI Report that Bank failed to comply with

instruction u/s 21, 35A, or not working in interest of public, depositors CG may make scheme of amalgamation, acquisition, winding up RB also has power to apply to CG to suspend business of Bank and prepare scheme of reconstitution s.36AE

Management
50 % Directors to be experts

Min 2 from agriculture/ rural

economy/cooperation / SSI Appointment /Reappointment/Termination of Chairman/MD/WTD/CEO need prior approval of RBI

Management
RBI can make changes in Management

including removal RBI has also power to appoint additional directors RBI has power to order Bank to call General Meeting to elect fresh directors Common directors not allowed in two banks

Chairman
Chairman to be full time Director

If not, full time MD to be appointed with

approval of RBI Both to work under supervision and control of Board Max tenure- 5 yrs (re-election allowed) No qualification shares requiredS

Licensing of Banks
RBI license mandatory to start bank

Prior approval also required for new branches

including overseas branches Foreign banks allowed on equality basis

s.22,23

Applicability to PSBs
PSBs governed by Special Laws

Most provisions applicable to PSBs also

Exceptions capital, common directors,

audit, licensing, control over mangmt., winding up PSBs are Scheduled Banks subject to CRR,SLR s.51