IMPORTANT POINTS OF BANKING REGULATION ACT, 1949

The Banking Regulation Act, 1949 is legislation in India that regulates all banking firms in India.
Initially, the law was applicable only to banking companies. But, 1965 it was amended to make it
applicable to cooperative banks.  Some of the important sections of banking regulation acts 1949
are as under.
1. Section 5(b) of the Banking Regulation Act, 1949, provides that “banking” means the
accepting, for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable by cheque, draft, and order or
otherwise.
2.  section 5(n) of the Banking Regulation Act, 1949, provides that secured loan or advance
means the loans and advances made on the security of assets the market value of which is not
at any less than the amount of such loan or advances.
3. Section 6(1) of the Banking Regulation Act, 1949, provides that a banking company in
addition to the business of banking engage in one or more of the following forms of business.
(i) Acting as agents for any Government or local authority or any other person or (ii) persons
or contracting for public and private loans and negotiating and issuing the same or (iii)
undertaking and executing trusts.
4. Section 9 of the Banking Regulation Act, 1949,no banking company shall hold any
immovable property howsoever acquired, except for its own use for any period exceeding 7
years.
5. Section 11  defines requirement as to minimum paid-up capital and reserves.
6. Section 12 provides regulation of paid-up capital, subscribed capital and authorised
capital and voting rights of shareholders.
7. Section 14A (1) of the Banking Regulation Act, 1949, prohibits allowing of advance
against its own shares.
8. Section 16 of the Banking Regulation Act, 1949, a person is prohibited to be appointed as
director of more than one banking company.
9. Section 18(1) of the Banking Regulation Act, 1949 (10 of 1949) read with section 56
thereof,  confers power to the Reserve Bank, decide the cash reserve ratio to be maintained by
the banks.[Cash Reserve Ratio is valued in accordance with the method of valuation specified
by the Reserve Bank from time to time on the basis of     Cash, or Gold valued at a price not
exceeding the current market price, or Unencumbered investment in approved securities as
defined in section 5(a) of the Banking Regulation Act, 1949 (10 of 1949)].
10. Section 21 provides that RBI has the power to control advances by banking companies.
11. Section 21A provides that rates of interest charged by banking companies not to be
subject to scrutiny by courts.
12. Section 22 defines  procedure for providing license to banking companies.
13. Section 23 of the Banking Regulation Act, 1949, prohibits banks  from opening a new
place of business(branches) in India or abroad, change of premises otherwise than within the
same city, change otherwise than within the town or village, without prior approval of RBI.
14. Section 26 of the Banking Regulation Act, 1949 states that every banking company to
submit an annual return to RBI in respect of all accounts in India which have not been
operated upon for 10 years.
15. Section 29 of the Banking Regulation Act, 1949, states that every banking company is
required to prepare its final accounts (Balance sheet and Profit and loss account) in the form
prescribed in the third schedule to the Banking Regulation Acts.
16. Section 35B  inserts amendments of provisions relating to appointments of Managing
Directors, etc., to be subject to previous approval of the Reserve Bank.
17. Section 35(ii)(b) of the Banking Regulation Act, 1949, confers right of inspection to be
carried out by RBI of branches of Indian banks situated abroad.
18. Section 36AA states the power of Reserve Bank to remove managerial and other persons
from office.
19. Section 36AB states the power of Reserve Bank to appoint additional Directors
20. Section 36 AD of the Banking Regulation Act, 1949,provides that no person shall (i)
obstruct any person from lawfully entering or leaving any office or place of business of a
banking company or from carrying on any business there or hold within the office of place of
business of any banking company, any demonstration which is violent or which prevents or is
calculated to prevent, the transaction of normal business by the banking company or  act in
any manner circulated to undermine the confidence of the depositors in the banking company.
21. Section 36AE provides power of Central Government to acquire undertakings of banking
companies in certain cases.
22. Section 37 provides  Suspension of business & Section 38  provides winding up by High
Court.
23. Section 45 provides power of Reserve Bank to apply to Central Government for
suspension of business by a banking company and to prepare scheme of reconstitution or
amalgamation
24. Section 45Y of the Banking Regulation Act, 1949,provides the rules specifying the
period of which a bank may preserve its books, accounts, instruments, documents etc. are
made by Central Government.
25. Section 45Z (1) of the Banking Regulation Act, 1949,provides that while returning a paid
instrument to a customer the bank must retain the true copy of all relevant parts of such
instruments.
26. Section 45ZA provides rules for  Nomination for payment of depositors’ money.
27. Section 45ZB provides procedures of  notice of claims of other persons regarding
deposits not receivable.
28. Section 45ZC provides rules for Nomination for return of articles kept in safe custody
with banking company.
29. Section 45ZE provides procedure for release of contents of safety lockers.
30. Section 45ZF  provides procedures of notice of claims of other persons regarding safety
lockers not receivable.