LAW OF BANKING - 15 Minutes Seminar Notes

 LAW OF BANKING - 15 Minutes Seminar Notes

INTRODUCTION:

• The Indian banking sector is regulated by the Reserve Bank of India Act 1934 (RBI Act) and the Banking Regulation Act 1949 (BR Act).
  
• The Reserve Bank of India (RBI), India’s central bank, issues various guidelines, notifications and policies from time to time to regulate the banking sector.
  
• In addition, the Foreign Exchange Management Act 1999 (FEMA) regulates cross-border exchange transactions by Indian entities, including banks.
  

PRIMARY STATUS AND REGULATIONS THET GOVERN THE BANKING SECTOR:

• India has both private sector banks (which include branches and subsidiaries of foreign banks) and public-sector banks (i,e, banks in which the government directly or indirectly holds ownership interest). Banks in India can primarily be classified as:
  
• scheduled commercial banks (ie, commercial banks performing all banking functions);
  
• cooperative banks (set up by cooperative societies for providing financing to small borrowers); and
  
• regional rural banks (RRBs) (for providing credit to rural and agricultural areas).
  
• The RBI has also introduced specialised banks such as payments banks and small finance banks that perform only some banking functions.
  

RBI Act:

The RBI Act was enacted to establish and set out functions of the RBI. It grants the RBI powers to regulate the monetary policy of India and lays down the constitution, incorporation, capital, management, business and functions of the RBI.

BR Act:

The BR Act provides a framework for supervision and regulation of all banks. It also gives the RBI the power to grant licences to banks and regulate their business operation.

FEMA:

FEMA is the primary exchange control legislation in India. FEMA and the rules made thereunder regulate cross-border activities of banks. These are administered by the RBI.

The other key statutes include:

• The Negotiable Instruments Act 1881
  
• The Recovery of Debts Due to Banks and Financial Institutions Act 1993
  
• The Bankers Books Evidence Act 1891
  
• The Payment and Settlement Systems Act 2007
  
• The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002
  
• The Banking Ombudsman Scheme 2006.
  
• Co operative societies Act 1912
  
• RBI ACT 1934
  
• Industrial  Finance Corporation of India Act 1948
  
• Banking companies act 1949
  
• Industrial disputes act 1949
  
• Banking regulation companies rules 1949
  
• SBI act 1955
  
• SBI subsidiary banks act 1959
  

• Subsidary banks general regulation 1959
  
• RRB act  1976
  
• National banks for Agriculture and Rural Development Act 1981
  
• National Housing bank Act 1987
  
• NABARD general regulations 1982
  
• SIDBI general regulation 1990
  
• Security and Exchange Board of India act 1992
  
• FEMA act 1999
  
• Prevention of Money Laundering Act 2002
  
• Government securities act 2006
  

IMPORTANT SECTION OF BANKING REGULATION ACT 1949

The act has 56 sections. The most important among them are:

• Section 10BB: Power of the RBI to appoint the chairman of the board of directors on a whole time basis or a managing director of a banking company
  
• Section 11: Requirement as to minimum paid up capital and reserves
  
• Section 12: Regulation of paid up capital, subscribed capital and authorized capital and voting rights of shareholders
  
• Section 17: Reserve fund
  
• Section 18: Cash reserve
  
• Section 20: Restrictions on loans and advances
  
• Section 21: Power of RBI to control advances by banking companies
  
• Section 21A: Rates of interest charged by banking companies not to subject to scrutiny by courts
  
• Section 22: Licensing of banking companies
  
• Section 23: Prohibits banks from opening a new place of business in India or abroad, change of premises other then within the same city, town or village without prior approval of the RBI
  
• Section 26: Each banking company to subit an annual return to the RBo on respect of all accounts in India which has not been operated for upto 10 years
  
• Section 29: Accounts and balance sheet
  

• Section 36AA: Power of RBI to remove managerial and other person from office
  
• Section 36AB: Power of the central government to acquire undertakings of banking companies in certain cases
  
• Section 39: RBI to be official liquidator
  
• Section 46: Penalities
  
• Section 47A: Power of RBI to impose penalities
• Section 49: Special provisions for private banking companies
  
• Section 49A: Restriction on acceptance of deposit withdrawal by cheque
  
• Section 49B: Change of name by a banking company
  
• Section 52: Power of RBI to make rules
  

Presented By,

Dhandayuthapani

Banking Student 

Magme School Of Banking