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Banking Regulation Act

Banking Law (Karnataka State Law University)

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“A COMPARATIVE ANALYSIS OF CUSTOMER SATISFACTION IN

NATIONALISED AND PRIVATE BANKS IN MADHYA PRADESH 2001-2010”

Chapter 3

Banking Regulation Act

3.1 Introduction

Bank is an organization which does the work collecting

deposits and advancing loans for his customers. It is true that bank exist
when customers‘ exist. It is for that customer that bank came into being.
That is why; the sole objects of any bank are to provide good services to
the customers‘ so that the bank functions smoothly. Now a day‘s bank is
catering to every walk of human being. They are trying their best to reap
maximum profit by proving financial assistance in every walk of life.
With the coming of new modern banks like the Centurion Banks, Cosmos
Bank etc., the public sector is facing steep competition especially in the
area of customers. Such banks are in the ideas of providing modern day
comfort to every of customer of its. This has forced the public sector bank
to set committee to study the customers need and the area in which
improvement is required.

3.2 Definition of Banking

A banking company is defined as a company which transacts

the business of banking in India. The Indian Banking Regulation Act
defines the business of banking by stating the essential functions of a
banker. It also states the various other businesses a banking company may
be engaged in and prohibits certain business to be performed by it.

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“A COMPARATIVE ANALYSIS OF CUSTOMER SATISFACTION IN

NATIONALISED AND PRIVATE BANKS IN MADHYA PRADESH 2001-2010”

As per section 5(b) of Banking Regulation Act, 1949

The term banking is defined as ―accepting, for the purpose of

lending or investment of deposits of money from the public, repayable on
demand or otherwise, and withdrawals by cheque, draft, order or
otherwise"

3.3 Banking Regulation Act, 1949

As per Section 5(b) of Banking Regulation Act, 194974

Banking means the accepting, for the purpose of lending or

investment, of deposits of money from the public, repayable on demand
or otherwise, and withdraw able by cheque, draft, order or otherwise.

As per Section 5(c) of Banking Regulation Act, 194975

―Banking Company" means any company which transacts

the business of banking in India.

Explanation of the word banking company: -

Any company which is engaged in the manufacture of goods

or carries on any trade and which accepts the deposits of money from
public merely for the purpose of financing its business as such
manufacturer or trader shall not be deemed to transact the business of
banking within the meaning of this clause.

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“A COMPARATIVE ANALYSIS OF CUSTOMER SATISFACTION IN

NATIONALISED AND PRIVATE BANKS IN MADHYA PRADESH 2001-2010”

As per Section 5(d) of Banking Regulation Act, 1949

Company means any company as defined in Section 3 of the

Companies Act, 1956 and includes a foreign company within the
meaning of Section 591 of that Act.

As per section 51 of Banking Regulation Act, 1949,

Certain provisions of the banking regulation act are also

applicable to the State Bank of India, any corresponding new bank, a
regional rural bank and any subsidiary bank. "Corresponding New Bank"
has been defined under clause (e) of section 2 of the DICGC Act to mean
a corresponding new bank constituted under the Banking Companies
(acquisition and transfer of undertakings) Acts of 1970 or 1980.

Name Must Include the Word Bank, Banker or Banking

As per section 7of Banking Regulation Act, 194976

1. No company other than a banking company shall use as part of its

name [or, in connection with its business] any of the words "bank",
"banker" or "banking" and no company shall carry on the business
of banking in India unless it uses as part of its name at least one of
such words.

2. No firm, individual or group of individuals shall, for the purpose of

carrying on any business, use as part of its or his name any of the
words "bank", "banking" or "banking company".

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“A COMPARATIVE ANALYSIS OF CUSTOMER SATISFACTION IN

NATIONALISED AND PRIVATE BANKS IN MADHYA PRADESH 2001-2010”

3. Nothing in this section shall apply to:- (a) A subsidiary of a

banking company formed for one or more of the purposes
mentioned in subsection (1) of section 19, whose name indicates
that it is a subsidiary of that banking company; (b) Any
association of banks formed for the protection of their mutual
interests and registered under section 25 of the Companies Act,
1956 (1 of 1956).

Banking Company in India has been defined in the Banking

Companies Act, 1949,

―One which transacts the business of banking which means

the accepting, for the purpose of lending or investment of the deposits of
money from the public, repayable on demand, or otherwise and withdraw
able be cheque, draft, order or otherwise.‖ The banking system is an
integral subsystem of the financial system. It represents an important
channel of collecting small savings from the households and lending it to
the corporate sector. The Indian banking system has RBI as the apex
body for all matters relating to the banking system. It is the Central Bank
of India. It is also known as the banker to all other banks.

The RBI77 –defines a modern bank

―An establishment for the custody of money received from,

or on behalf of, its customer. It is essential duty is to pay their drafts on it,
its profit arise from the use of the money left unemployment by them.‖
Banks organize the borrowing and lending work (credit) of the
community, they lend their funds (capital) and borrowed funds and their
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Reserve Bank of India

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“A COMPARATIVE ANALYSIS OF CUSTOMER SATISFACTION IN

NATIONALISED AND PRIVATE BANKS IN MADHYA PRADESH 2001-2010”

own credit to person engaged in trade, agriculture, manufacturing and

other industries. They supply a part of the medium of exchange in the
form of bank notes, cheques.

Sir John Paget’78 Definition

According to Sir John Paget ―No person or body ,corporate

or otherwise ,can be a banker who does not (i) take deposit account, (ii)
take current account , (iii) issue and pay cheques and (iv) collect cheque,
crossed and uncrossed, for his customers‖. This definition points out the
four essential functions of banking business. Sir John Paget also lays
emphasis on the performance of the above functions in a regular and
recognized manner. According to him ―one claiming to be a banker must
profess himself to be one and public must accept him such as his main
business must be that of banking from which, generally he should be able
to earn his living.‖ The above mentioned function does not include the
other functions which are now being performed by modern bankers.

3.4 Chapter Conclusion

The chapter emphasizes on the definition of banking,

Banking Regulation Act 1949 to transact the business of banking in India.
The chapter concludes that “Borrowing and lending are the two
fundamental transactions of all banking business banks
borrow to lend”

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A noted authority of banking

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