About RBI functions,Rules,Regulations,

1. Banking Regulation act 1949
&
Role of RBi
Amiya kumar sahoo
Innovation-The Business School

2. aBout RBi
 RBI established on 1st April, 1935 under the
Reserve Bank of India Act 1934.
 Initially it was a private sector bank & nationalized
on 1st January 1949 & with this the central
Government owned 100% capital of the bank.
 The first Governer of the bank O. Smith & the first
Indian Governer was Dr. C. Desmukh.

3. MANAGEMENT
 Managed by a Board of Directors (total
directors twenty), which consists of :
1. Governor
2. Not more than four deputy governor
3. Fifteen other directors

4. functions of RBi
 Note issuing Authority
 Banker to Government (Central & State)
 Banker’s Bank
 Controller of Credit
 Custodian of Foreign Exchange Reserve
 and Lender of the Last Resort

5. note issuing authoRity oR Bank of issue:
 Under Section 22 of the Reserve Bank of India Act, the
Bank has the sole right to issue bank notes of all
denominations other than one rupee notes or coin & all
coins issued by the Government of India.
 Issues note in denominations of rupees two, five, ten,
Twenty, fifty, one hundred, five hundred & one thousand,
known as bank Notes & carry a guarantee by the Central
Government.
 RBI can issue notes against the security of gold coins, gold
bullions, foreign securities, rupee coins, Govt. of India
securities & bills of exchange, promissory notes. Out of this
the value of gold coins & foreign securities should not be
less than Rs. 200 crores.

6.  Currency chest- Apart from its issues department,
the RBI has appointed public sectors bank to acts as
his agents for distribution of currency. These banks
are required to maintain currency chests for this
purpose.
 RBI reimburse expenses incurred by public bank for
maintaining the currency chest.
 The balance in the currency chests are the property of
the RBI.
 Small coins do not form a part of the currency chest
& are stored on separate depots called as small coin
depots.

7. Acting as Banker to Government
 RBI acts as a Government banker, agent and advisor to central
& state Governments.
 RBI has the obligation to transact Government business, via.
to keep the cash balances as deposits free of interest, accepting
cheques, receiving & collecting payments, transferring funds
,to receive and to make payments on behalf of the Government
and to carry out their exchange remittance and other banking
operations.

8.  The bank also provides ‘Ways & Means Advances
(WMA) to both central & state Governments for
bridging the temporary gaps between receipts &
payments with a maturity of 3 months.
 RBI also permits the State Government to draw
overdrafts apart from WMAs.
 It acts as adviser to the Government on all monetary
and banking matters.

9. Controller of credit
 Quantitative credit control methods:
Bank rate, CRR, SLR
Open market operations (OMO)- The sale & purchase of
Govt. securities by RBI is called OMO.
Through OMO RBI controls-
1. Inflation
2. Lending & borrowing power of banks
3. Money supply to market
4. Liquidity in the economy.

10. Custodian of Foreign Exchange Reserve
(sec 40)
 Maintains the rate of exchange of the
rupee
 The Reserve Bank has to act as the
custodian of India's reserve of
international currencies.
 RBI has the responsibility of maintaining
fixed exchange rates with all other
member countries of the I.M.F
 The vast sterling balances were acquired
and managed by the Bank.

11. Bankers Bank and lender of last resort
 Provides financial help during crisis time
 Increases elasticity and liquidity of the
credit structure in the market
 Enables commercial banks to carry their
activities with their limited cash reserve
 Way of exercising control over banking
system

12. Others
 Bank of settlement and clearance
 Information and research functions

13. Banking Regulation Act - 1949
 Act was originally called as Banking Companies
Act 1949.
 It came into force from 16th March 1949.
 Now it is renamed as Banking regulation Act
1949.
 Reasons for commencement of this Act.

14. Provisions of the Act
1. Definition of Banking(sec 5(b))
2. Business of Banking Company (sec 6)
Main Functions
Subsidiary Functions
Kinds of business that can not be done
3. Capital Requirement.

15. S. Foreign banking co. Amount(Rs.)
N
1. If it has a place of business in Bombay or Calcutta or both 20 lacs
2. If it has no place of business in Bombay or Calcutta 15 lacs
Indian banking co.
1. Banking co. having place of business in more than 1 state 5 lacs
2. Banking co. having place of business in more than 1 state & 10 lacs
if any such place include Bombay or Calcutta or both
3. Banking co. having place of business in 1 state but none in
Bombay or Calcutta
a) For principal place of business plus 1lacs
b) For each of place in the same district plus 10000
c) For each of place in other district 25000
subject to overall limit of 5lacs
4. Banking co. having only one place of business and also no 50000
branch in Bombay or Calcutta
5. a) Banking co. having place of business in only
1 state, one or more or which is or are situated in Bombay
or Calcutta or plus 5lacs
b) For each place of business outside the city 25000
c) subject to overall limit of 10lacs

16. Continue……..
4. Management
 Board of Directors
 Wholetime Chairman
5. Maintenance of Liquid Assets
 CRR(sec 18)
 No loans & advances on its own shares(sec 20)
 No floating charge to any of its property(sec 14A)
 Credit policy need to be followed by Banks(sec21)

17. Continue…
 Cannot be a pledgee of any immovable property for
period of exceeding 7 years(except official work)sec 9
 Cannot hold shares in other co’s more than 30% of paid
up capital of that co or their own(sec 19)
 Restriction on granting loans to any of the its directors or
to any institution in which director is interested.
 SLR
 Foreign co. Should keep assets in India atleast to the
extent of 75% of total liabilities at the end of every
quarter

18. 6. Licensing of Banks(sec 22)
 Financial status
 Companies affairs are in compliance
with the rules
 Foreign banks
1. No discrimination
2. Business in public interest
3. Comply with the provisions of Act

19. 7.Opening of New branches(sec 23)
 Prior permission from RBI(in India or
abroad) or changing location of the
existing offices.
 Conditional license
 Conditions to be satisfied
 Prior consent not required
 New licensing policy

20. 8. Loans and Advances(sec 21)
 Purpose of loan
 Margin for secured advances
 Amount of advances to a bank, company ,
individual or a firm
 Rate of interest and other terms
 Maximum amount upto which guarantee can be
given
 Exceptions- No loan to director, or no loan on
security of its own shares

21. 9. Inspection of Banks(sec 35)
 RBI has a right to inspect books of accounts of
any bank
 Obligation on every employee to produce all the
books
 Right to examine any of the
officer/Director/employee
 Either its own initiative or by order of central
govt.
 Report to be prepared, send to bank and Central
govt and decision to be taken.

22. 10.Returns to be submitted
 Returns of liquid assets & liabilities(sec 23(3))
 Returns of unclaimed deposits(sec 26)
 Monthly returns(sec 27)
 Return of annual accounts(sec 31)(auditors report)
 Additional information(advances)

23. 11. Acquisition of business(sec 36 AE to AJ)
 When banking co fails to comply the
directions given under sec 21 of 35A
 When banking business is carried on to
the detriment of interest of the depositors
 When RBI feels to provide credit in a
better way to a particular area.
 Compensation is paid to shareholders.

24. 12. Winding up of a Banking co.
1) If banking co. is unable to pay its debts
a) if it refused to meet any lawful demand made at any of
its offices with in 2 days(some cases 5 days).
b) If RBI certifies in writing
2) The RBI will make an application under the following
circumstances :
a) fails to comply with the provisions of Act.
b) unable to pay debts
c) fails to implement satisfactory compromise sanctioned
by court
d) against the interest of depositors
e) Liquidator

25. 13. Amalgamation of Banking Companies
(sec 44(a))
 Information to shareholders and approved by two-third
majority of shareholders
 Details of meeting to be given to every shareholder,
needs to be published in at least two newspapers for
three consecutive weeks
 Discontented shareholders can claim their value of
shares
 Amalgamation scheme has to be sanctioned by RBI
 Assets & liabilities are transferred
 A copy of order of amalgamation to be given to ROC

26. 14. Powers of RBI
 Discussed earlier
 Power to grant moratorium
 Power to appoint liquidator
 Additional powers

27. 15. Miscellaneous Provisions(penalties (sec 46))
 False or inaccurate return – fine & imprisonment
upto 3 years
 Failure to furnish documents, accounts or
comply with the Act – penalty of Rs. 2000 (plus
Rs.100 per day)
 Receiving deposits in contravention of order of
RBI – fine upto twice of amount
 Persons responsible for fault ,shall be deemed
guilty of the default

28. 16. Application of the Act to Co-op Bank
 Co-op banks were brought under the
purview of Banking Regulation Act 1949.
 The Act is not apply to all state and central
Co-op banks
 This Act is not applicable to Land
development banks and agriculture credit
society.

29. Class Exercise
 Which of the following situations will lead to a
fall in the interest rates?
1. When there is excess money supply
2. When the domestic currency offered at lower
rates
3. When the repos are offered at lowered rates
4. Both 1) & 2)
5. Both 1) & 3)

30. THANK YOU!!!