Bra

Module: A
A Presentation: Banking Regulation Act
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P.L. KULKARNI kpramod43@gmail.com prakash misal
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Introductory:
Module A deals with Regulations and Compliance . In this section questions will be asked regarding the legal issues and problems that arise in so far as regulation of banks is concerned. Provisions of BR Act- 1949 and provisions of RBI Act- 1934 are required to be studied . Provisions of Banking Companies ( Acquisition and Transfer of Undertakings Act- 1970 & 1980 are required to be studied.
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Banking:
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SECTION 5 (b) OF BANKING REGULATION ACT 1949 DEFINES BANKING AS UNDER: BANKING MEANS ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRABLE BY CHEQUE, DRAFT, ORDER OR OTHERWISE.
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Objective:
To protect the interest of the banking system or the interest of monetary stability or sound economic growth ( having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources )
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Acceptance of deposits:
Only in the form of money. Only by way of deposit. ( Therefore, keeping the money in safe custody would not amount to banking. ) Deposits can be in the form of Current / savings bank/ term deposits. KYC norms apply. A banker has a right to refuse an account .
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Non Banking Entities:
Manufacturing / trading entities also can accept deposits from public. But there will be no control of RBI. Individual, firms and other unincorporated associations of persons whose main business is financial institution ca not accept deposits from public. RBI has prohibited such activity under section 45 S of RBI Act- 1934.
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License:
Please remember, every banking company ( whether it is created under a special statute like SBI/ Its subsidiaries/ Nationalized Banks/ RRBs/ Local Area Banks/ Private Sector Banks/ Foreign Banks / Co-operative Banks should have a license from RBI under section 22 of BR Act1949 for commencing or for carrying on business of banking. Thus, when RBI withdraws the license of a bank, it ceases to be a bank.
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License:
It may be remembered granting license to a bank is a prerogative of RBI. It can not be challenged; save if the decision is based on extraneous circumstances or is perverse, then only it can be challenged in the court of law. Before granting license, the RBI shall carry on the inspection of the proposed bank under section 35 of the BR Act and shall satisfy it self about the financial position of the proposed bank.
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Please remember:
Registration of a business entity and granting a license to a bank are two different things. A business entity intending to carry on business may be registered under a special statute / may be registered under Companies Act/ may be registered as a Co-operative Society. However, all these entities intending to carry on business of banking have to obtain license under BR Act -1949
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License..
Every Branch of a Bank / an ATM Center/ an Extension Counter etc. should be licensed by RBI under BR Act. Shifting of a branch within the same city/ town/ village does not require permission of RBI. RBI is a licensing authority. Opening of a branch purely of a temporary nature say for about a month does not require permission of RBI.
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Business:
License is granted by RBI to banks to function as a bank. It means banks are permitted to carry on business of banking as defined under section 6 of BR Act. No other business which is not included in section 6 of BR Act, can be carried out by a Bank. This section is very important . Let us read the same.
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Section 6 of BR Act 1949

Form and business in which banking companies may engage (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely,(a) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; and drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts, bill of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and P.L. KULKARNI kpramod43@gmail.com 4/22/2012 prakash misal 12 securities whether transferable or negotiable or 12
Section 6 of BR Act Contd..

.. the granting and issuing of letters of credit, travelers' cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on
behalf of constituents or others; the negotiating of loan and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and P.L. KULKARNI kpramod43@gmail.com 13 4/22/2012 prakash misal 13 transmitting of money and securities;
(b) acting as agents for any government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a 30[Managing Agent or Secretary and Treasurer] of a company;
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(c) contracting for public and private loans and negotiating and issuing the same; (d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or private, of State, municipal or other loans or of shares, stock, debentures or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue; (e) carrying on and transacting every kind of guarantee and indemnity business;
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(f) managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims; (g) acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security; (h) undertaking and executing trusts;
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(i) undertaking the administration of estates as executor, trustee or otherwise; (j) establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts, and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pension and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent object or for any exhibition or for any public, general or useful object;
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(k) the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the company; (l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company;
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(m) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; (o) any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage. (2) No banking company shall engage in any form of business other than those referred to in sub-section (1).
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Subsidiaries:
A bank can form a subsidiary company to carry on business as indicated in section 6.
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Prohibition of trading.
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, or engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation. Section 8 of BR Act 1949
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Regulation of Banks:
Reserve bank of India is a central bank of the country and is empowered under the provisions of Banking Regulation Act 1949 to regulate the banks. The main objective of controlling the banks is to protect the interest of the depositors and maintain the monitory stability of the country.
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Following important points may be noted: Power to issue of license, Power of appointment/ removal of banking boards/ personnel, Power to regulate the business of banks, Power to give directions, Power to inspect and supervise banks, Power regarding audit of banks,
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Power to collect, collate ( analyze and compare critically ) and furnish credit information, Power relating to moratorium, amalgamation and winding up of banks, Power to impose penalties.
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Licensing :
RBI has a power to issue license/ withdraw the license of a bank. ( when the license is cancelled, an appeal can be made to the Central Government within a period of 30 days ) Following important conditions are required to be satisfied: Whether the banking company is or will be in a position to pay its present and future depositors in full as their claims arise, Whether the affairs of the bank are being conducted or likely to be conducted in a manner detrimental to the interest of its present and future depositors,
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Licensing:
Whether the general character of proposed management of the company will not be prejudicial to public interest or the interest of depositors, Whether the company has an adequate capital structure and earning prospects, Whether public interests will be served by grant of license to the company,
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Licensing:
Whether considering the banking facilities available in the proposed area of operation , the potential scope for expansion of business by banks already in existence in that area and other relevant factors , the grant of license would be prejudicial to the operation and consolidation of banking system, consistent with the monitory stability and economic growth, Any other relevant condition .
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Licensing :
There are requirements as to the minimum share capital. There are special considerations for granting licenses to foreign banks. The operations of Local Area banks are limited to a particular district where the bank is issued a license to carry on business.
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Cancellation of license;
RBI has power to cancel the license of a bank in the following circumstances: When the bank ceases to carry on banking business in India, The bank fails to comply the requirements of RBI, ( as revealed by inspection of the bank) When in the opinion of RBI, the bank has failed to honour the claims of depositors.
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Branch Licensing:
Every branch of the bank must obtain a license from RBI. Banks are required to submit branch expansion programme on annual basis. The conditions apply to ATM centers/ extension counters also. Four conditions are important for granting a license to a branch:
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Branch Licensing:
Financial condition and history of the bank, General character of its management, Adequacy of capital, / earning prospects, Public interest.
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Share Capital:
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By definition, share capital is owned fund. Reserves ( un-distributed profits ) are also owned funds. It is the objective of RBI to make banks strong. It means banks should have high net worth. Depending upon the sector to which a bank belongs ( Public/ private/foreign/ cooperative ) norms have been fixed in respect of capital.
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Share Capital:
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The norms are in respect of entry point norms before a company starts banking business and norms also in relation to holding minimum level of share capital. ( capital adequacy norms apply. ) As far as foreign banks are concerned, they are required to keep certain amount by way of deposits with RBI. they are also required to keep 20 % of their annual profit by way of deposit with RBI. Very soon, newP.L.private sector banks with higher KULKARNI kpramod43@gmail.com 33
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Voting rights
Share holding and voting rights have a relationship. In co-operative banks one member one vote is the principle. However, in the case of other banks, voting rights have a relationship with the number of shares held. No share holder can exercise voting rights more than 10 % of the total voting rights.
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Concentration of shares:
Acquiring the shares in the open market with a view to acquiring the management control is screened by RBI. Bulk transfer of shares requires RBI permission. Every bank is required to submit report on share holdings to RBI ( details of shares held by chairman/ other board members etc. ) Not more than 2.5 % brokerage/ commission ( of total paid up capital ) etc can be paid for issue of share capital
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Dividend declaration:
In order to making the banks strong, restrictions have been imposed in declaring dividend. No divided can be paid unless all capitalized expenses are fully written off. Banks are also supposed to maintain Capital Adequacy Ratio to the extent of 9% of their risk weighted assets. They are also required to make adequate provision towards NPA. Co-operative banks are required to transfer 25 % of their profit towards statutory reserves.
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Board:
The management of a bank is vested in the Board. BR Act provides for certain conditions. Accordingly, at least 51 % of Directors should be professional which means they should have expertise in the field of banking, accountancy, industry, agriculture, co-operation etc. Directors should not have substantial interest in other companies/ firms. ( so that he can devote time towards the management of the bank. ) Directors can hold office for a period 8 years continuously.
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Board:
Board is a elected body of the share-holders. The law also provides for appointment of additional directors belonging to 1) banking policy, 2) public 3) banking company 4) depositors etc. Law provides for appointment of a chairman. He can hold office for a period of 5 years. He should be a person with experience in banking. ( not applicable to co-operative banks. ) In the case of public sector banks, chairman of the bank is appointed by RBI.
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Board:
In the case of public sector banks / private sector banks/ foreign banks, the Board of the banks is fully professional. Law provides for removal of the Chairman of a bank by RBI. There is provision to fill in temporary vacancies. The intention of these provisions is to entrust the management of banks in the experienced hands and give the management sufficient time to manage the working of the banks.
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Board:
Board is expected to carry on the business of the bank in the interest of depositors, public and in the monitory interests of the country. There are provisions (Sec 36 of BR Act 1949) for removal of Board, Chairman and Chief Executive of a Bank . This power can be used by RBI to further public interest, protect the interests of depositors, and securing proper management control of a bank.
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Functioning of the Board:
The latest guidelines on the functioning of the Board are carrying on the business of banking professionally in the light of Income Recognition, Asset classification and provisioning norms. There are guidelines as to CAMELSc. There are guidelines as to the participation of the board members in the functioning of the bank . The board is expected to observe Corporate Governance principles.
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Control over co-operative banks:

RBI sees this aspect in a different manner. Provisions of BR Act were made applicable to cooperative banks in the year 1966. certain provisions are not applicable to co-operative banks. Health of Urban Co-operative banks / State / District Central Co-operative banks is in bad shape. There is dual control on these banks by RBI/ NABARD and respective State Governments. The present trend is towards consolidation of P.L. KULKARNI kpramod43@gmail.com 42 4/22/2012 prakash misal 42

Br Act 1949 is applicable to Co-operative banks. Section 56 of BR Act Banks are expected to fallow the provisions of the Act in letter and spirit. BR Act 1949 is not applicable to : All PACS whatever may be the value of their paid up capital and reserves;
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All non- agri primary credit societies with paid up capital and value less then Rs. 1 lac; All co-operative credit societies , the principal business of which is not banking All co-operative societies not carrying on any banking business. All co-operative land mortgage banks.
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Every Co-operative Credit Society carrying on business of banking need to obtain the license from RBI if the value of its paid up share capital and reserves is more than Rs. 1 lac. State Co-operative Banks and District Central Co-operative Banks need to have a license regardless of the value of their share capital and reserves
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All Provisions of BR Act 1949 are applicable to co-operative banks except the following: Controls over Management of banking Companies empowering Government / RBI to remove Managerial cadre and other officers from office ( se.36- AA ) Appointment of additional Directors ( se.36-AB )
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Power of Central government to take over banking companies does not apply to cooperative banks. ( Because as per our constitution, Co-operation is a State Subject. ) Suspension of business and winding up of banking companies is not applicable to cooperative banks except sub-sections 1,2 & 3of section 45 which relate to Moratorium.
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Part III A of the BR Act ( section 45-A to 45-X) Special Provisions for Speedy Disposal of Winding up Proceedings is not applicable to Co-operative banks.
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Functioning of banks:
RBI has got wide powers to control the functioning of the banks. It begins with issuing of license, constitution of the board and appointment of Chairman etc. RBI has wide powers to issue directions to Banking Industry. Section 35 of banking Regulation Act is very important.
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Functioning of banks:

As per this section RBI has powers to instruct/ direct/ advise and guide the banks. The communication from RBI is almost mandatory. The law also provides cardinal principles of banking viz. Liquidity, safety and profitability. Therefore, certain provisions are required to be looked into: Section 9 tells us that a Co-operative bank is prohibited from holding any immovable property acquired except for personal use. It means a bank can acquire immovable property and make use of it for its business including training center, flats for the use of staff etc.
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Main business:
The main business of a bank consists of acceptance of deposits and granting loans/ making investment of surplus funds. RBI has issued exhaustive guidelines as to the acceptance of deposits, return on unclaimed deposits, provisions as to the deposit policy, adoption of fair practice code, etc. Guidelines have also been issued in respect of rates of interests on deposits. The law also provides for acceptance of nomination facility. Banking operations are controlled by DBOD / UCB of P.L. KULKARNI kpramod43@gmail.com RBI. 4/22/2012 prakash misal
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Main Business:
Granting loans and advances is another main function of a bank. There are guidelines on the subject of loans and advances. No loans can be granted by a bank against the security of its shares. BR Act provides restrictions on granting loans and advances to Directors / granting remission to directors in respect of recovery of debts of directors. BR Act also provides for Power of Reserve Bank to control advances by banking companies . This section is very important. Let us look at the section 21 of BR Act.
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Section 21 of BR Act:
Power of Reserve Bank to control advances by banking companies. (1) Where the Reserve Bank is satisfied that it is necessary or expedient in the public interest 63[or in the interests of depositors] 64[ or banking policy] so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, and when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined.
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(2) Without prejudice to the generality of the power vested in the Reserve Bank under sub-section (1) the Reserve Bank may give directions to banking companies, either generally or to any banking company or group of banking companies in particular, as to (a) the purposes for which advances may or may not be made, (b) the margins to be maintained in respect of secured advances , (c) the maximum amount of advances or other financial accommodation which, having regard to the paid-up capital, reserves and deposits of a banking company and other relevant considerations, may be made by that banking company to any one company, firm, association of persons or individual,
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Section 21 of BR Act :
(d) the maximum amount up to which, having regard to the considerations referred to in clause (c), guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual, and (e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given.] Every banking company shall be bound to comply with any directions given to it under this section.]
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21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts. Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be re-opened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.]
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Main Functions of a Bank:
The main functions of the banks are : To accept the deposits from public , to grant loans and advances and Invest funds as demanded by law , & of surplus funds, Return the money of the depositors, Promote banking business , Protect the interests of the depositors , and Function within the rules and regulations set by RBI in the interests of the monitory system. ( RBI has got powers to issue instructions/ directions/ advise/ guide the banks. )
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Payment System:
Business of banking deals with depositing sums of money into the account/s and withdrawing the sums of money from the account/s. There is a mechanism for both the activities. Amount can be deposited in the account/s by depositing the cash or instruments/ bills which can be subsequently collected. Amount can also be deposited in the account by the bank by means of remittance system/ it can be deposited in the account by means of ECS system. . P.L. KULKARNI kpramod43@gmail.com 58 4/22/2012 prakash misal 58
Payment System:
Similarly, for payment system RBI has now been empowered as per section 58 of RBI Act 1934 to make rules and regulations as to the payment system. Accordingly, RBI is now empowered to frame rules as to the management of clearing system/ rules as to the payments to be made by way of ECS/ electronic funds transfer system etc.
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Payment System
Rules have also been framed for use of technology in the banks and provisions of Information Technology Act -2000 are also made applicable to the banks.
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Grievances:
In so far as grievances of the customers are concerned, RBI has framed a scheme known as Banking Ombudsman Scheme -2006. This aspect will be dealt with separately. In so far as customer service is concerned, RBI has appointed various committees from time to time and have adopted the suggestions of these committees. The latest committees on the subject are Goiporia Committee and Damodaran Committee ( Its report is awaited. )
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Control :
Now let us look into how BR Act has provided for control of the Banks By RBI. Certain sections are very important. These sections take care of liquidity, safety and profitability the three cardinal principles of banking. Let us now see how these principles have been embodied in BR Act. The first principle is Liquidity.
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Control:
Liquidity is very important to a bank. Delay on the part of the bank to effect payment to the depositors/ customers may result into dissatisfaction. Failure on the part of the bank to satisfy the demand of the customers ( specially depositors ) to get back their money may result into run on the bank. There are provisions in BR Act to protect the interests of the depositors. RBI is empowered to initiate action/s against the banks/ board and personnel of the banks. There P.L. KULKARNI kpramod43@gmail.com 63 4/22/2012 prakash misal 63 are provisions as to the penalties/ fines etc.
CRR:
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In so far as liquidity is concerned, every bank is required to keep certain cash with it/ RBI. or/ representative of RBI. These provisions are seen in se. 18 of the BR Act. According to this section, every bank is required to keep a CRR equivalent to minimum of 3 % of its average net demand and time liabilities calculated on a fortnightly basis. Failure to comply the requirements of CRR may result into penalties. RBI has powers to increase the rate of CRR as per RBI Act. Every bank is required to submit a return to RBI regarding CRR. RBI has powers to call for the information / returns from the banks. P.L. KULKARNI kpramod43@gmail.com 64
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CRR:
The fortnightly return in respect of CRR is required to be submitted to RBI under se. 42 ( 2 ) of RBI Act. Interest is not payable on the balances held by banks in CRR. The rate of CRR is different to Co-operative banks / other banks. RBI is strict regarding maintenance of CRR by the banks.. Failure to comply with the RBI requirements of CRR attracts penalty.
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SLR se. 25 of BR Act 1949:
Another requirement to liquidity and more so about the safety of the banks is included in the BR Act 1949. as per section 24 of BR Act 1949, every scheduled bank is required to keep in cash / gold / Government approved securities an amount which shall not, at the close of business on any day, be less than twenty-five per cent or such other percentage not exceeding forty per cent, as the Reserve Bank may, from time to time, by notification in the Official Gazette, specify, of the total of its demand and time liabilities in India, as on the last Friday of the month.
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Control:
Some of the important aspects in relation to control / regulation of banking business in India by RBI are : RBI has powers to call for the information from the banks/ analyse the same/ and publish the same in the interest of public. RBI has powers to require the banks to prepare accounts of the banks and get the same audited.
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Control:
Every bank is required to prepare final accounts of its business as at the last day of year ( mainly now 31st March ). The Balance-sheet and Profit & Loss Account are required to be prepared as per formats provided in BR Act/ These final accounts are required to be audited, copies thereof are required to be filed with RBI/ they are suitably required to be published in the news papers / copies thereof are required to be displayed at every branch of the bank for the information of the public. . ( Sec. 29,30 & 31,33 P.L. KULKARNI kpramod43@gmail.com 68 4/22/2012 prakash misal 68 )
Duty on the part of Auditor:
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(a) whether or not the information and explanation required by him have been found to be satisfactory; (b) whether or not the transactions of the company which have come to his notice have been within the powers of the company; (c) whether or not the returns received from branch offices of the company have been found adequate for the purposes of
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Duty on the part of Auditor:
(d) whether the profit and loss account shows a true balance of profit or loss for the period covered by such account; (e) any other matter which he considers should be brought to the notice of the shareholders of the company.
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Audit and Inspection:
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RBI has powers to get the books of accounts audited/ institute a special audit of the bank in the interest of the public/ depositors. RBI has powers to inspect the working of the banks and take necessary action/s against the bank/s. Provisions embodied in section 35 and 36 of BR Act 1949 are very important and can be called as the gist of the Act.
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Section 35 of BR Act 1949:
(1) Notwithstanding anything to the contrary contained in section 235 of the Companies Act, 1956 (1 of 1956), the Reserve Bank at any time may, and on being directed so to do by the Central Government shall, cause an inspection to be made by one or more of its officers of any banking company and its books and accounts; and the Reserve Bank shall supply to the banking company a copy of its report on such inspection.
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(1A) (a) Notwithstanding anything to the contrary contained in any law for the time being in force and without prejudice to the provisions of sub-section (1), the Reserve Bank, at any time, may also cause a scrutiny to be made by any one or more of its officers, of the affairs of any banking company and its books and accounts; and (b) a copy of the report of the scrutiny shall be furnished to the banking company if the banking company makes a request for the same or if any adverse action is contemplated against the banking company on the basis of the scrutiny.]
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(2) It shall be the duty of every director or other officer or employee of the banking company to produce to any officer making an inspection under sub-section (1) [or a scrutiny under sub-section (1A)] all such books, accounts and other documents in his custody or power and to furnish him with any statements and information relating to the affairs of the banking company as the said officer may require of him within such time as the said officer may specify. (3) Any person making an inspection under sub-section (1) for a scrutiny under sub-section (1A) may examine on oath any director or other officer or employee of the banking company in relation to its business, and may administer an oath accordingly.
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(4) The Reserve Bank shall, if it has been directed by the Central Government to cause an inspection to be made, and may, in any other case, report to the Central Government on any inspection or scrutiny made under this section, and the Central Government, if it is of opinion after considering the report that the affairs of the banking company are being conducted to the detriment of the interests of its depositors, may, after giving such opportunity to the banking company to make a representation in connection with the report as, in the opinion of the Central Government, seems reasonable, by order in writing
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(a) prohibit the banking company from receiving fresh deposits; (b) direct the Reserve Bank to apply under section 38 for the winding up of the banking company: Provided that the Central Government may defer, for such period as it may think fit, the passing of an order under this subsection, or cancel or modify any such order, upon such terms and conditions as it may think fit KULKARNI kpramod43@gmail.com to impose. P.L. 76
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(5) The Central Government may, after giving reasonable notice to the banking company, publish the report submitted by the Reserve Bank or such portion thereof as may appear necessary. Explanation. For the purpose of this section, the expression "banking company" shall include
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(i) in the case of a banking company incorporated outside India, all its branches in India; and (ii) in the case of a banking company incorporated in India (a) all its subsidiaries formed for the purpose of carrying on the business of banking exclusively outside India; and (b) all its branches whether situated in India or outside India.]
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(6) The powers exercisable by the Reserve Bank under this section in relation to regional rural banks may (without prejudice to the exercise of such powers by the Reserve Bank in relation to any regional rural bank whenever it considers necessary so to do) be exercised by the National Sank in relation to the regional rural banks, and accordingly, sub-sections (1) to (5) shall apply in relation to regional rural banks as if every reference therein to the Reserve Bank included also a reference to the National Bank.]
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35A. Power of the Reserve Bank to give directions. (1) Where the Reserve Bank is satisfied that (a) in the public interest; or (aa) in the interest of banking policy; or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or (c) to secure the proper management of any banking company generally,
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it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect.
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35B. Amendments of provisions relating to appointments of managing directors, etc., to be subject to previous approval of the Reserve Bank. (1) In the case of a banking company
(a) no amendment of any provision relating to the maximum permissible number of directors or] the appointment or reappointment or termination of appointment or remuneration of a chairman, a] 138[managing director or any other director, wholetime or otherwise] or of a manager or a chief executive officer by whatever name called, whether that provision be contained in the company's memorandum or articles of association, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or by its Board of directors shall have effect unless approved by the Reserve Bank;
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(b) no appointment or re-appointment or termination of appointment of a chairman, a managing or whole-time director, manager or chief executive officer by whatever name called, shall have effect unless such appointment, re-appointment or termination of appointment is made with the previous approval of the Reserve Bank.] Explanation. For the purpose of this sub-section, any provision conferring any benefit or providing any amenity or perquisite, in whatever form, whether during or after the termination of the term of office of the chairman or the manager] or the chief executive officer by whatever name called or the managing director, or any other director, whole-time or otherwise, shall be deemed to be a provision relating to his remuneration.]
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Section 36 of BR Act-1949
Further powers and functions of Reserve Banks. (1) The Reserve Bank may (a) caution or prohibit banking companies or any banking company in particular against entering into any particular transaction or class of transactions, and generally give advice to any banking company; (b) on a request by the companies concerned and subject to the provision of section 44A, assist, as intermediary or otherwise, in proposals for the amalgamation of such banking companies;
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84 84
(c) give assistance to any banking company by means of

the grant of a loan or advance to it under clause (3) of sub-section (1) of section 18 of the Reserve Bank of India Act, 1934 (2 of 1934); (d)at any time, if it is satisfied that in the public interest or in me interest of banking policy or for preventing the affairs of the banking company being conducted in a manner detrimental to the interests of the banking company or its depositors it is necessary so to do,] by order in writing and on such terms and conditions as may be specified therein
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85 85
(i) require the banking company to call a meeting of its directors for the purpose of considering any matter relating to or arising out of the affairs of the banking company; or require an officer of the banking company to discuss any such matter with an officer of the Reserve Bank; (ii) depute one or more of its officers to which the proceedings at any meeting of the Board of directors of the banking company or of any committee or of any other body constituted by it; require the banking company to give an opportunity to the officers so deputed to be heard at such meetings and also require such officers to send a report of such proceedings to the P.L. KULKARNI kpramod43@gmail.com 86 4/22/2012 prakash misal 86 Reserve Bank;
(iii) require the Board of directors of the banking company or any committee or any other body constituted by it to give in writing to any officer specified by the Reserve Bank in this behalf at his usual address all notices of, and other communications relating to, any meeting of the Board, committee or other body constituted by it; (iv) appoint one or more of its officers to observe the manner in which the affairs of the banking company or of its offices or branches are being conducted and make a report thereon; (v) require the banking company to make, within such time as may be specified in the order, such changes in the management as the Reserve Bank may consider necessary .
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87 87
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(2) The Reserve Bank shall make an annual report to the Central Government on the trend and progress of banking in the country, with particular reference to its activities under clause (2) of section 17 of the Reserve Bank of India Act, 1934 (2 of 1934), including in such report its suggestions, if any, for the strengthening of banking business throughout the country.
88 88
(3) The Reserve Bank may appoint such staff at such places as it considers necessary for the scrutiny of the returns, statements and information furnished by banking companies under this Act, and generally to ensure the efficient performance of its functions under this Act.
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Control over Management:
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As per provisions of sec. 36 of BR Act 1949, RBI has powers to remove managerial and staff of the bank / remove the board of the bank / take steps in respect of winding up of the bank through High Court/ appoint a liquidator of the bank / has powers to prepare a scheme of amalgamation of the bank/s. RBI can recommend to Central Government to take over the business of a
90 90
Please unit 4 and unit 5 of the book provided to you. The contents of these units are very easy to understand. They are descriptive in nature. You may get questions on these units.
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91 91
Thank you.
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92 92

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Module: A

A Presentation: Banking Regulation Act

P.L. KULKARNI kpramod43@gmail.com prakash misal

Non Banking Entities:

Section 6 of BR Act 1949

Section 6 of BR Act Contd..

Section 6 of BR Act Contd..

P.L. KULKARNI kpramod43@gmail.com prakash misal

Section 6 of BR Act Contd..

P.L. KULKARNI kpramod43@gmail.com prakash misal

Section 6 of BR Act Contd..

P.L. KULKARNI kpramod43@gmail.com prakash misal

Section 6 of BR Act Contd..

Section 6 of BR Act Contd..

Section 6 of BR Act Contd..

A bank can form a subsidiary company to carry on business as indicated in section 6.

P.L. KULKARNI kpramod43@gmail.com prakash misal

P.L. KULKARNI kpramod43@gmail.com prakash misal

P.L. KULKARNI kpramod43@gmail.com prakash misal

P.L. KULKARNI kpramod43@gmail.com prakash misal

Functioning of the Board:

Control over co-operative banks:

Control over co-operative banks:

P.L. KULKARNI kpramod43@gmail.com prakash misal

Control over co-operative banks:

Control over co-operative banks:

Control over co-operative banks:

Control over co-operative banks:

Control over co-operative banks:

P.L. KULKARNI kpramod43@gmail.com prakash misal

P.L. KULKARNI kpramod43@gmail.com prakash misal

P.L. KULKARNI kpramod43@gmail.com prakash misal

P.L. KULKARNI kpramod43@gmail.com prakash misal

Main Functions of a Bank:

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SLR se. 25 of BR Act 1949:

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Duty on the part of Auditor:

Duty on the part of Auditor:

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Audit and Inspection:

Section 35 of BR Act 1949:

P.L. KULKARNI kpramod43@gmail.com prakash misal

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

P.L. KULKARNI kpramod43@gmail.com prakash misal

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

P.L. KULKARNI kpramod43@gmail.com prakash misal

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

Section 35 of BR Act 1949:

P.L. KULKARNI kpramod43@gmail.com prakash misal

(c) give assistance to any banking company by means of

P.L. KULKARNI kpramod43@gmail.com prakash misal

Control over Management:

P.L. KULKARNI kpramod43@gmail.com prakash misal

P.L. KULKARNI kpramod43@gmail.com prakash misal

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