Study Material for Bank Promotion – Banking Regulation Act

In this series of study material for bank promotion, these are brief Notes on Banking Regulation Act.  Read the underlined words carefully as they are important part of definition on which questions may be based.

THE BANKING REGULATION ACT, 1949 

• Applicable to entire India
• Effective from 10.03.1949
• Regulates all banking companies in India
• Initially applicable for banking companies but applicable to co-operative banks since 1965.
• Not applicable to Primary Agricultural Credit Society and Cooerative Land mortgage Banks and Agriculture primary credit societies.
• BR Act supplements the Companies Act.
• BR Act empowers RBI to give license for opening bank, regulate, supervise the banks, issue directives in public interest and impose penalties.
• Total 56 sections

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• Negotiable Instrument Act
• KYC and AML
• Reserve Bank of India Act
• Statutory Ratios and Rates- CRR, SLR, Bank Rate, Repo Rate etc.
• Difference between Promissory Note and Bill of Exchange
• Dishonor of cheque for insufficiency of funds (Section 138 of NI Act)
• Endorsement under negotiable Instrument Act, 1881

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Section 5:
Banking means accepting deposits, for the purpose of lending or investment. Deposits repayable on demand or otherwise or withdrawable by cheque or draft or otherwise.

Section 6:
Business, which a banking company may undertake in addition to banking.

 

Section 7:
Prohibition to use words ‘bank’ ‘banker’ or ‘banking company’ by any person/ company other than a banking company.

Section 8:
Prohibits a banking company to carry on any trading activity except realization of security held by it.

Section 9:
Banking company can not hold Immovable Property (otherwise than for own Use) for more than 7 years (period may be extended by RBI by another 5 years).

Section 11:
Minimum paid up Capital and Reserves –
Domestic Banks Min. – Rs. 5 lac
Foreign Banks Min. – Rs. 15 lac (Rs. 20 lac for business in Mumbai or Kolkata)

Section 17
Banking company to transfer 20% of profits to reserve fund before declaring dividend.

Section 19(2) :
A banking company can not hold shares in any company, whether as pledgee, mortgagee or absolute owners of an amount exceeding 30% of its own paid up share capital + reserves or 30% of the paid up share capital of that company whichever is less.

Section 20 (a)
Bank can not grant loan against security of its own shares.

Section 21
Empowers RBI to issue directives to banks for lending (loan policy).

Section 21A:
Rate of interest charged by banks can not be reopened by any court on the ground that the rate of interest charged by banks is excessive.

Section 22
Empowers RBI to issue banking license.

Section 23
Empowers RBI for branch licensing

Section 24 :
Statutory Liquidity Ratio– Banks to maintain liquid assets in form of cash, gold & unencumbered approved securities at the close of any business which is minimum of certain percentage (Presently 20.50 %,wef. 07.01.2017) of its total demand and time liabilities in INDIA as on last Friday of the second preceding fortnight. Max SLR can be fixed at 40% but RBI has liberty to fix minimum SLR.

Section 26
Banks to submit Return of inoperative deposits for last 10 years.

Section 35
Empowers RBI for inspection of banks.

Section 35A
Empowers RBI to issue directions to banks in public interest.

Section 45(ZA to ZF):
Related to Nomination facility in deposit

Section 49A
No person can accept deposits withdrawable by cheques except a banking company.

Also Read:
Difference between Promissory Note and Bill of Exchange
Dishonour of cheque for insufficiency of funds (Section 138 of NI Act)