increased power of Reserve Bank of India under Banking Law (Amendment) Act, 2012

1. BANKING LAW
semINAr - I
THEME- Banking Laws (Amendment) Act, 2012
SUB-THEME – Increased powers of Reserve Bank
of India
SUBMIITED TO SUBMITTED BY
Dr. R.S. Solanki Itisha Jain, 090713
FOL LL.M.

2. introduction
The Banking Laws (Amendment) Act, 2012 seeks to
strengthen the regulatory powers of the Reserve Bank of India
and to further develop the banking sector in India. This Act
aims to address the issue of capital raising capacity of banks
in India by enabling nationalized banks to raise capital by
issue of preference shares or rights issue or issue of bonus
shares. It would also enable them to increase or decrease the
authorized capital with approval from the Government and
RBI without being limited by the ceiling of a maximum of Rs.
3000 crore. The Bill would also pave the way for new bank
licenses by RBI resulting in opening of new banks and
branches.

3. history
The Banking Regulation Act, 1949 has been in
force for more than six decades.
The bill was first introduced in the Lok Sabha on May
13, 2005.
The Bill then presented to the Lok Sabha in 2011 incorporates
certain provisions of the Banking Regulation (Amendment)
Bill, 2005.
After various delays and much deliberation, the Banking Laws
(Amendment) Bill was finally passed in December 2012 during the
Winter Session of the Parliament.
The Lok Sabha (Lower House) passed the bill on December 18 2012 and the
Rajya Sabha (Upper House) approved on December 20 2012. Enabling the Bill
to become law, President Pranab Mukherjee gave his assent to the Bill on
January 10 January 2013.

4. .
Salient features
of the Act
To enable banking
companies to issue
preference shares
subject to regulatory
guidelines by the RBI
To increase the
cap on restrictions
on voting rights
To create a Depositor
Education and
Awareness Fund.
To provide prior approval
of RBI for acquisition of
5% or more of shares or
voting rights in a banking
company by any person.
Increased powers
of RBI
To enable the nationalized
banks to raise capital through
“bonus” and “rights” issue
and also enable them to
increase or decrease the
authorized capital with
approval from the
Government and RBI

5. Powers Granted to RBI under the
Act-
1. Enhanced regulatory powers of RBI-
The Act enabled RBI, in consultation with the central government, to supersede
the board of directors of banking company for a period up to six months, if its
affairs are conducted in a manner detrimental to the interest of the depositors.
2. Inspect Associate Enterprises-
The Act empowers the RBI to call for any
information and cause inspection of
business of any ‘associate enterprise’ of a
bank. This should provide legal
framework for setting up of bank holding
companies and pave the way for issue of
new bank licenses.

6. .
3. Depositor Education and Awareness Fund
RBI has been empowered to establish Depositor Education and Awareness
Fund. Funds lying in any non-operative accounts for 10 years or more or
any deposits not claimed for 10 years or more in a bank now requires to be
credited to the said Fund within 3 months from the expiry of 10 years.
4. Cash Reserve ratio (CRR)-
The Act empowers RBI to demand
penalty from the defaulting bank, if
it fails to maintain CRR on any day
of the year.
5. Cooperative Societies-
According to the amending Act
the cooperative societies
should mandatorily obtain license
from RBI to carry on the banking
business.

7. .
6. Merger of Banks-
The legislation intends to exempt the mergers of banking companies from the
purview of the Competition Commission of India, thereby, conferring power
to RBI to take the decision.
7. Acquisition of substantial shareholdings
The Act provides that approval of the RBI must be
procured for any direct or indirect acquisition of
shares or voting rights in an Indian bank which is in
excess of 5% of the paid-up capital of the bank.

8. conclusion
The measures contained in the amended Act will
create more confidence among investors, depositors
and the public in the banking system, more reforms
are needed in the immediate future to improve
corporate governance and free up the public sector
banks from political interference, as well as the dual
control of banks by the Finance Ministry and the
RBI.

9. .
Thank you

10. .
Thank you