2. Banki ng Law
Legislations
Banking Regulations Act 1949
Reserve Bank Of India Act 1934
3. Banki ng Law
Banking Regulations Act 1949
Section 5(b)defines banking as accepting for the
purpose of lending or investing of deposits of money
from the public repayable on demand, and
withdrawal by cheque, draft or order
Permitted business of Banking
Borrowing, lending or advance of money, dealing in
bills of exchange, hundis promissory notes …..
Acting as agents for government or local authority or
any other person or persons
Contracting for public and private loans and
negotiating and issuing the same
Continued…………….
4. Banki ng Law
Dealing with issues of shares, loans , debentures etc
for any company
Carrying on and transacting every kind of guarantee
and indemnity business
Undertaking and executing trusts
Undertaking the administration of estates as executor
trustee or otherwise
Selling, improving, managing, developing,
exchanging, leasing, mortgaging or dealing with any
or all maters of the property or compampany
Any other form of business as specified by the
government in the Official Gazette
5. Banki ng Law
Business prohibited for Banks
No banking company shall directly or indirectly
deal in the buying or selling or bartering of goods
except in connection with the realization of
security given to or held by it.
6. Banki ng Law
Licensing of Banking Companies
Section 22 specifies that RBI will issue license to a
banking company after inspecting the books of the
banking company and satisfaction of the following
conditions
That the company is in a position to pay its present or future
depositors in full as teir claims accrue
That he proposed management will not be prejudicial to the
public interest or to the interest of its depositors
That the company has adequate capital structure and earning
prospects
continued …………………
7. Banki ng Law
The RBI can cancel the license of the bank if it
finds
If the company ceases to carry on banking business
in India
Fails to comply any of the conditions imposed on it
under subsection(1), 3,3(A)
Section 23 deals with opening of branches
8. Banki ng Law
Restrictions on loans and advances
Section 20 (notwithstanding anything to the contrary
in section 77 of the companies act 1956 ) no company
shall
Grant loans and expenses on the security of its own shares
Enter into any commitment for granting any loan or advance
to or on behalf of
Any of its directors
Any firm in which any director is interested as partner, guarantor or
employee
Any individual in respect of whom any of the directors is partner or
guarantor
9. Banki ng Law
Management of Banking Companies
Section 10 prohibits employment of managing agents
Section 10(a) specifies that 51% of directors in any board of
directors of banking companies shall satisfy the following
conditions:
Shall have special knowledge of one of the following
Accountancy
Agriculture or rural economy
Co-operation
Economics
Finance
Law
Small-scale industry
Any other matter the knowledge and experience of which in the opinion
of the RBI be useful to the banking company
10. Banki ng Law
Shall not have substantial interest in, or be
connected with, whether as employee, manager or
managing agent :
Any company not registered under section 25
Any firm which carries on any trade, commerce or
industry which in either case is not a small-scale
industrial concern
Be proprietors of any trading, commercial or industrial
concern, not being a small-scale industrial concern
11. Banki ng Law
If the above criteria is not met RBI may
Instruct to reconstruct the composition of the
board
Remove a director and appoint a person of its
choice
It will be deemed that such an individual be elected
by the banking company
12. Banki ng Law
Subsection 2(a) states that a director
Cannot hold office for more than eight years
Once removed from his office cannot be reappointed
for next 14 years
Section 16 any person who is already director of a
banking company is barred from directorship in any
other banking company Directors appointed by the RBI
are exempt from this rule
13. Banki ng Law
Reserve Bank Of India Act 1934
Central bank of India
Established April1,1935 under Reseve Bank of
India Act 1934
Was nationalized in 1948
Performs the function of
Central Banking
Supervisory control of banks
Promotional banking
14. Banki ng Law
Central Banking Function
Issue of Currency
Issues and regulates banknotes of all denominations through a
separate issues department
Required to maintain gold and foreign exchange reserves in the form
of minimum reserve systems
Banker to Government
Banker to the central and state governments transacts business by
Maintaining cash balance
Receiving and making payments
Managing public debt
Providing advances to the government for 90 days
Advising government on floating of loans and legislation affecting banking
continued ………………
15. Banki ng Law
Bankers and lenders of last resort
Scheduled banks can borrow from RBI on basis of
eligible securities
Obtain financial accommodation by rediscounting
their bills of exchange
Supervision of banks : the RBI has statutory power to
regulate the credit generated by banks
Section 21 RBI can control the advances against commodities
under Selective Credit Control Mechanism it can stipulate the
The purpose
Margin
Rate of interest
continued ……….
16. Banki ng Law
The volume of credit is normally controlled through the
regulatory instruments of bank rate, open market
operations and variable cash reserve requirements.
Control over bank rate is liberalized. However it remains a
bench mark in the fluctuating interest rate regime. Bank
rate is the rate of interest at which the RBI rediscounts
bills of exchange
RBI can impound bank reserves to maintain the
liquidity of assets in the form of statutory liquidity
ratio, the following assets are taken into account
Cash in hand (India)
Balance in current account with India
Investment in government securities