University of Lucknow

Faculty of Law

Subject- Banking law

Topic- Business and management of Banking companies

Submitted to – Anurag Srivastava Submitted by- Shreyansh Tiwari

Roll no - 39 section- A

TABLE OF CONTENTS

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 1. Introduction

2. Business of banking companies

3. Management of banking companies – section 10B of banking

Regulation Act,1949

4. Management of banking companies- explanation

5. Accounts and audit of a banking companies

6. Conclusion

7. Bibliography

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 INTRODUCTION
The banking and regulations act was enacted to safeguard the interest of the depositors and to
control the abuse of powers by controlling the banks by any means necessary and to the interest
of Indian economy in general. There are many provisions of banking regulation act 1949 and we
are going to the topic about business of banking companies.

Business of banking companies

1. In banking regulation act 1949, section 6 it provides a list of activities which a banking
company may engage in the business of banking. The Main functions are as follows
2. Acting as agents for any Government or local authority or any other person carrying the
agency’s business of any description but excluding of the managing agent or secretary
and treasurer of a company.
3. Managing the public loan and private loan and solving issues respectively.
4. The insuring, guaranteeing, underwriting, participating in managing and carrying out of
any issue public or private of the State municipal or other loans or of shares, stock,
debentures, stock of any company, corporation or association and the lending of money
for any purpose
5. May carrying on every kind of guarantee business.
6. Managing, selling and realizing any property which may come into the possession of the
company in satisfaction in any of its claims.
7. Can acquire, hold and deal with any property or any right, title or interest in any such
property which may form the security for any loan or advance which may be connected
to any of that security.
8. Undertaking and executing trusts.
9. Undertaking the administration of estates as executor, trustee.
10. Establishing and supporting of associations, institutions, funds, trusts and conveniences
calculated to benefit employees or ex-employees of the company.
11. The acquisition, construction, maintenance and alteration of any building or works
necessary for the purposes of the company.
12. Selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of
or turning into account or otherwise dealing with the property and rights of the company.
13. Acquiring and undertaking the whole or part of the business of any person or a company,
when such business is of a nature enumerated or described in the act.
14. Doing all these things as are incidental or conducive to the advancement of the business
of the company.
15. Any other form of business which the Central Government fixed in the Official Gazette,
and specified as a form of business in which it is lawful for a banking company to
engage.

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 The above list of activities is exhaustive but not comprehensive. There are several kinds of
services listed above both under main business as well as ancillary business, some are agency
services and general utility services

MANAGEMENT OF BANKING COMPANIES

Section 10B in BANKING REGULATION ACT,1949
[10B. Banking Company to be managed by whole time chairman—
[(1) Notwithstanding anything contained in any law for the time being in force or in any contract
to the contrary, every banking company in existence on the commencement of the Banking
Regulation (Amendment) Act, 1994 (20 of 1994), or which comes into existence thereafter shall
have one of its directors, who may be appointed on a whole-time or a part-time basis, as
chairman of its Board of directors, and where he is appointed on a whole-time basis, as chairman
of its Board of directors, he shall be entrusted with the management of the whole of the affairs of
the banking company: Provided that the chairman shall exercise his powers subject to the
superintendence, control and direction of the Board of directors.
(1A) Where a chairman is appointed on a part-time basis,—
(i) Such appointment shall be with the previous approval of the Reserve Bank and be subject to
such conditions as the Reserve Bank may specify while giving such approval;
(ii) The management of the whole of the affairs of such banking company shall be entrusted to a
managing director who shall exercise his powers subject to the superintendence, control and
direction of the Board of directors.]
(2) [Every chairman of the Board of directors who is appointed on a whole-time basis and every
managing director] of a banking company shall be in the whole-time employment of such
company and shall hold office for such period, not exceeding five years, as the Board of directors
may fix, but shall, subject to the provisions of this section, be eligible for re-election of
reappointment: Provided that nothing in this sub-section shall be construed as prohibiting a
chairman from being a director of a subsidiary of the banking company or a director of a
company registered under section 25 of the Companies Act, 1956 (1 of 1956).
(3) Every person holding office on the commencement of section 3 of the Banking Laws
(Amendment) Act, 1968 (58 of 1968), as managing director of a banking company shall—
(a) If there is a chairman of its Board of directors, vacate office on such commencement, or
(b) If there is no chairman of its Board of directors, vacate office on the date on which the
chairman of its Board of directors is elected or appointed in accordance with the provisions of
this section.

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 (4) [Every chairman who is appointed on a whole-time basis and every managing director of a
banking company appointed under sub-section (1A)] shall be person who has special knowledge
and practical experience of—
(a) The working of a banking company, or of the State Bank of India or any subsidiary bank or a
financial institution, or
(b) Financial, economic or business administration: Provided that a person shall be disqualified
for being a [chairman who is appointed on a whole time basis or a managing director], if he—
(a) Is a director of any company other than a company referred to in the proviso to sub-section
(2), or
(b) Is a partner of any firm which carries on any trade, business or industry, or
(c) Has substantial interest in any other company or firm, or
(d) is a director, manager, managing agent, partner or proprietor of any trading, commercial or
industrial concern, or
(e) is engaged in any other business or vocation.
(5) [A chairman of the Board of directors appointed on a whole-time basis or a managing
director] of a banking company may, by writing, under his hand addressed to the company,
resign his office.
[(5A) 6[A chairman of the Board of directors appointed on a whole-time basis or a managing
director] whose term of office has come to an end, either by reason of his resignation or by
reason of expiry of the period of his office, shall, subject to the approval of the Reserve Bank,
continue in office until his successor assumes office.
(6) Without prejudice to the provisions of section 36AA where the Reserve Bank is of opinion
that any person who, is, or has been elected to be, the [chairman of the Board of directors who is
appointed on a whole-time basis or the managing director] of a banking company is not a fit and
proper person to hold such office, it may, after giving to such person and to the banking
company a reasonable opportunity of being heard by order in writing, require the banking
company to elect or appoint any other person as the [chairman of the Board of directors who is
appointed on a whole-time basis or the managing director] and if, within a period of two months
from the date of receipt of such order, the banking company fails to elect or appoint a suitable
person as the [chairman of the Board of directors who is appointed on a whole-time basis or the
managing director], the Reserve Bank may, by order, remove the first-mentioned person from the
office of the [chairman of the Board of directors who is appointed on a whole-time basis or the
managing director] of the banking company and appoint a suitable person in his place whereupon
the person so appointed shall be deemed to have been duly elected or appointed, as the case may
be, as the 9[chairman of the board of directors who is appointed on a whole-time basis or the
managing director] of such banking company and any person elected or [appointed as chairman
on a whole-time basis or managing director] under this sub-section shall hold office for the
residue of the period of office of the person in whose place he has been so elected or appointed.

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(7) The banking company and any person against whom an order of removal is made under sub-
section (6) may, within thirty days from the date of communication to it or to him of the order,
prefer an appeal to the Central Government and the decision of the Central Government thereon,
and subject thereto, the order made by the Reserve Bank under sub-section (6), shall be final and
shall not be called into question in any court.
(8) Notwithstanding anything contained in this section, the Reserve Bank may, if in its opinion it
is necessary in the public interest so to do, permit [the chairman of the Board of directors who is
appointed on a whole-time basis or the managing director] to undertake such part-time honorary
work as is not likely to interfere with his duties as [such chairman or managing director].
(9) Notwithstanding anything contained in this section, where a person [appointed on a whole-
time basis, as chairman of the Board of directors or the managing director] dies or resigns or is
by infirmity or otherwise rendered incapable of carrying out his duties or is absent on leave or
otherwise in circumstances not involving the vacation of his office, the banking company may,
with the approval of the Reserve Bank, make suitable arrangements for carrying out the [duties
of chairman or managing director] for a total period not exceeding four months.]

A banking company must have a whole-time chairman appointed for five years at a time. He
may become a director of a subsidiary of the banking company or of a guarantee company
registered under Section 25 of the Companies Act but cannot take up any other appointment. The
Chairman is appointed by the Board of Directors but, in the case of nationalized banks, he is
appointed by the Central Government.

At least 51% of the directors of a banking company must be such persons as have specialised
knowledge, or practical experience, in respect of accountancy, agriculture, rural company,
banking cooperation, economics, finance, law or any other matter which is approved by the
Reserve Bank as useful to the banking company. Directors must not be proprietors of any
trading, commercial or industrial concerns (other than small industrial concerns) and also must
not have substantial interest in, or be connected with (as employee or manager etc.), any
commercial company except a guarantee company incorporated under Section 25 of the
Companies Act and except a small scale industrial concern. The Reserve Bank of India has the
power to order the removal of a director or the chairman.

Management of banking companies

Following is the explanation of section10 B
1. The banking company must be managed by a whole time chairman- the chairman
may be part time or a permanent must be appointed from among one of the directors who
will be the chairman of its board of directors. All the management of the whole of the
affiars of the banking company will be managed by such chairman.

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 2. When a chairman is appointed on a part time basis-
i. The approval of the reserve bank is necessary for such appointment.
ii. There will be a managing director to look after all the management of the whole of the
affairs of the banking company. The managing director will exercise all his powers subject to
superintendence, control and direction of the board of directors.
3. Every chairman of the board of directors who is appointed on a whole time basis and
every managing director of a banking company shall be in the whole time
employment of such company and he will hold the office for a maximum period of
five years, as the board of directors may fix his term. He can be eligible for reelection
of reappointment.
4. The chairmen and the managing directors of the banking company appointed under sub
section 1A shall have special knowledge and practical experiences in the fields of following-
i. He should have a practical and special knowledge about the working of a banking
company or of the state bank of india or any subsidiary bank or a financial institution,
ii. He should have knowledge vis a vis financial, economic, or business administration.
5. Grounds on which a chairman can be disqualified
The person can be disqualified as a chairman or a managing director for the following reasons-
a. If he is director of any company other than a company referred to in the proviso to sub-
section 2.
b. If he is a partner of any firm which caries on any trade, business or industry.
c. If he is having any substantial interest in any other company or firm.
d. If he is a director, manager, managing agent, partner or proprietor of any trading,
commercial or industrial concern.
e. If he is engaged in any other business.
6. The chairman of the board of directors appointed on a whole time basis or a managing director
of a banking company may, by writing, under his hand addressed to the company, resign his
office.
7. Once the chairman of the board of directors or the managing director has been retired or his
term of office has come to an end either by resignation or by the reason of expiry of the period of
his office may seek approval of the reserve bank to continue in office until his successor assumes
office.
8. Any person who is elected to be the chairman of board of directors or the managing director of
a banking company, if the reserve bank finds such person unfit and improper to hold such office,

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 it may give the banking company or such person a reasonable opportunity to be heard by the
order in writing, the banking company may elect or appoint any other person for such office.
And if within a period of two months from the date of receipt of such order, the banking
company fails to appoint or elect suitable person for such office, then in such case the reserve
bank may remove the first mentioned person from the office and RBI may appoint a suitable
person in his place and such a person will be deemed to be duly appointed or elected as the case
may be.
9. The banking company and any person against whom an order of removal is made under sub
section 6may within 30 days from the date of communication to it or to him of the order, prefer
an appeal to the central government and the decision of the central government thereon, and the
order made by the reserve bank under sub section 6 shall be final and not be called into question
in any court.
10. The reserve bank may also permit the chairman of board of directors or the managing
director to undertake such part time honorary work as is not likely to interfere with his duties.
11. When a chairman or a managing director dies or resigns or is by infirmity or otherwise
rendered incapable of carrying out his duties or is absent on leave or In circumstances not
involving the vacation of his office, the banking company may with the approval of the reserve
bank make suitable arrangements for carrying out the duties of chairman or managing director
for a total period not exceeding four months.

Accounts and Audit of a Banking Company:

Every banking company, incorporated in India, at the end of financial year expiring a period of
12 months as the Central Government may by notification in the Official Gazette specify, must
prepare a Balance Sheet and a Profit and Loss Account as on the last working day of that year or
according to the Third Schedule or as circumstances permit.

At the same time, every banking company, which is incorporated outside India, is required to
prepare a Balance Sheet and also a Profit and Loss Account relating to its branch in India also.
We know that Form A of the Third Schedule deals with form of Balance Sheet and Form B of
the Third Schedule deals with form of Profit and Loss Account.

It is interesting to note that a new set of forms have been prescribed for Balance Sheet and Profit
and Loss Account of the banking company and RBI has also issued guidelines to follow the new

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forms with effect from 31st March, 1992. In other words, the annual accounts for the year ending
31st March, 1992, and onwards are to be prepared in the new formats given in the book.

According to Sec. 30 of the Banking Regulation Act, the Balance Sheet and Profit and Loss
Account should be prepared according to Sec. 29 and the same must be audited by a qualified
person known as auditor. It is needless to mention here that every banking company must take
previous permission from RBI before appointing, re-appointing or removing any auditor. RBI
can also order special audit for public interest of depositors.

Moreover, every banking company must have to furnish their copies of accounts and Balance
Sheet prepared according to Sec. 29 along with the auditors’ report to the RBI and also the
Registrar of Companies within three months from the end of the accounting period.

The Government of India, in January 1991, has issued a notification to make amendments to the
Third Schedule to the said Act incorporating and considering the recommendations of the Ghosh
Committee, relating to the formats of Balance Sheet and Profit and Loss Account since, after
nationalization of commercial banks, the old formats were not found suitable.

As such, the suggestions were examined and a fresh notification was issued on 19th December,
1991, expressing the Government’s intentions to introduce the revised formats. Thus the RBI
issued a circular as on 6th February, 1992, to the chief executives of all commercial banks to
prepare their accounts under revised formats for the year ended 31st March, 1992, and thereafter.

CONCLUSION
We see that banking companies are mostly governed by reserve bank of India, from appointment
of its chairman of board of directors to appointing the managing directors as we have seen in the
above section 10B sub section 5A, 6, 7, 8, 9. These banking companies are managed by the
chairman of board of directors and managing directors and should have some specific knowledge
related to the area with a practical knowledge as well. Managing such companies are not so easy
task to do, so there is a well-organized board of directors, then there are chairman, The managing
director and many more. The RBI also plays a crucial role in managing such companies and it
necessary as well so as to stop the arbitrariness of such companies. In other words, the
interference of the RBI is necessary.

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Talking about the business of the banking companies, the banking companies plays an important
role in carrying out an umpteen number of businesses. The list mentioned above in the business
of banking companies section of the activities is exhaustive but not comprehensive. There are
several kinds of services listed above both under main business as well as ancillary business,
some are agency services and general utility services.

BIBLIOGRAPHY
Following are the sources that I have referred to take the help in completion of my assignment on
the topic business and management of the banking companies.
BOOKS-
1. Banking law by R.N. Chaudhary
2. Tannan’s banking law practices
3. Banking regulation’s Act 1949

ARTICLES-
1. An article by Nilima M on the topic management of banking companies
2. Article on the management of banking system in India by Dr. Morusu Siva Sankar
Ive also referred to shodhganga for further help and Indiankanoon for exhaustive research on the
management of the banking companies and also took a miniscule help from the class notes.

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