UNIT-I

Nature and Development of Banking - History of

banking in India and elsewhere- indigenous
banking-evolution of banking in India – different
kinds of banks and their functions.-Multifunctional
banks- growth and legal issues.

Law Relating to Banking Companies In India:

Controls by government and its agencies: On
management-On accounts and audit-Lending-Credit
policy-Reconstruction and reorganization
Suspension and winding up.
Banking Law 1
• UNIT-II
• Banking Regulation Act, 1949: Evolution of Central Bank,
Characteristics and functions, Economic and social objectives, The
Central bank and the State - as banker’s bank, The Reserve Bank of
India as the Central Bank.

• Organisational Structure – Functions of the RBI- Regulation of

monitory mechanism of the economy - Credit control - Exchange
control-Monopoly of currency issue - Bank rate policy formation.
Control of RBI over non- banking companies, Financial companies,
Non financial companies.

• The Deposit Insurance Corporation Act, 1961: Objects and reasons-

Establishment of Capital of DIC, Registration of banking companies
insured banks, liability of DIC to depositors. Relations between
insured banks, DIC and Reserve Bank of India.
• Banking Law 2
 Unit- I NATURE AND DEVELOPMENT
OF BANKING
History of Banking

Functions of Banks

Growth and legal Issues

Banking Law 3
 Unit- I LAW RELATING TO BANKING
COMPANIES IN INDIA

Control

Management

Credit policy and suspension and winding up

Banking Law 4
•Origin of the word ‘Bank’
•Bancus or Banque
•A Bench

Banking Law 5
Other Opinion

Originally • German word

derived “Back”

Meaning – • Joint- stock

Italianised • into “banco”

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 History of Banking
• Babylonians - Emphesus and Delphi - great
temples ( Greek banking institutions) were used
as banks

• Romans –not organized- minute regulation

Banking Law 7
 History of Banking
The first bank – Venice(1157)
-- Genoa (1407)
Development of British Banking
Edward III - Money Changing- Royal Exchanger
Goldsmiths- “Goldsmiths notes”

“issue” and “deposit”

Banking Law 8
 Development of British Banking
Royal Exchanger
Edward III - Money Changing-
Goldsmiths-
“Goldsmiths notes
“issue” and “deposit”
Charles II
Bank of England in1694
Monopoly of Note Issue
Peel’s Act of 1844
Evolution of Banking Law
Banking Law 9
 History of Indian Banking System
• Vedic period
• Agency Houses
• Presidency Banks
– Bank of Bengal (1809)
– Bank of Bombay (1840)
– Bank of Madras (1843)
1921- amalgamation of Presidency banks
• Imperial Bank of India

Banking Law 10
History of Indian Banking System
Imperial Bank of India(1921)

State Bank of India(1955)

Reserve Bank Of India(1934)

Banking Regulation Act, 1949

Nationalization of Banks
(1969 and 1980)
Banking Law 11
Banking Law 12
 Banks in India
Reserve bank of
India

Commercial Banks Co- operative Banks Development Banks

Banking Law 13
Banking Law 14
 Reserve Bank of India
• Organization of RBI
Central Board of Directors (Section-8)
• A Governor + 4 deputy- Governors {Sec-8(1) (a)}
• 4 Directors(each one from LB) {Sec-8(1) (b)}
• 10 Directors {Sec-8(1) (c)}
• One Government Official {Sec-8(1) (d)}
Local Boards of RBI
Mumbai(headquarter), Kolkata, Chennai and New
Delhi
Board for Financial Supervision (BFS)section 58

Banking Law 15
 Reserve Bank of India
• Main functions
1. Issuer of currency in India
2. Banker to the Government
3. Banker to Commercial Banks
4. Organizer of Commercial Banking system
5. Regulator and Supervisor of the Financial system
6. Financial Supervision
7. Monetary Authority
8. Monetary and credit policies
9. Controls the volume of credit
10. Manager of foreign Exchange
11. Maintenance of value currency
12. Development of rural banking
13. Money and capital market
14. Promotion of Financial Institutions
Banking Law 16
 RBI and Its Promotional Role-
Economic and Social objectives
• RBI established the Bill Market Scheme 1952
Economic
• Financial Corporations to provide credit to the agriculture and growth
Industrial sectors of the economy and
Developm
• Promoted RRB with the help of Commercial Banks to Extend
ent of the
banking facilities to rural areas Country
• Enable commercial banks to open branches in foreign centres
and has helped the establishment of an EXIM bank in India to
provide finance to exporters

• RBI encourages and promotes research in the areas of banking.

Banking Law 17
CLR 4.25% (wef. 03/11/2012) from 4.50%
SLR 23 % (wef. 11/08/2012) from 24%

INR V/S USD

1 Rupee = 0.02 USD
1 USD = 53.47 rupees on (22/01/2013)

Bank rate 9% (wef. 17/4/2012) from 9.50%

Repo rate 8. % (wef. 17/4/2012) from 8.50%

Reverse Repo rate 7% (wef. 17/4/2012) from 7.50%
By 22/ 01/2013
Banking Law 18
 Commercial Banks
• Main Function
– Financing organized trade, Commerce and Industry
– Provide finance to agriculture, small scale industries,
small borrowers.
Classification of Commercial Banks
1. Indian and Foreign Commercial Banks
2. Scheduled Commercial Banks and Non – Scheduled
Commercial Banks
3. Commercial Banks in public sector and private sector

Banking Law 19
• Indian and Foreign Commercial Banks
Indian Banks- All banks incorporated in India whether
having business in India or abroad are Indian Banks.
Foreign Banks - Banks incorporated and established
outside India but have place of business in India are
Foreign Banks.
Example- Bank of America
Bank of Tokyo Ltd
British Bank of the Middle-East etc

Banking Law 20
Scheduled Commercial Banks and Non – Scheduled
Commercial Banks

Conditions for inclusion in 2nd Schedule under

S- 2(e) of RBI Act 1934
• Paid-up Capital and reserves of an aggregate
value not less than 5 lakhs of rupees
• Depositors interest
• Sec-42 (1) 0f RBI requires to maintain cash
reserves minimum 3% -and which can go up to
maximum of 15% their Demand and Time
liabilities

Banking Law 21
 Functions of Commercial Banks

• Receiving money on deposit

• Issuing of notes
• Lending of money
• Transferring money from place to place

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Banking Law 23
 CRR- %
SLR -%
Repo – %
Reverse repo- %
Bank rate-%
Current USD to INR exchange rate
equals ……………… Rupees per 1 US Dollar.

Banking Law 24
• Scheduled Commercial Banks

• SBI and its Associates

• Nationalized Banks
• Private Sector Banks
• Co-operative Banks
• RRB
• Local Area Banks(Coastal Local Area Bank Ltd ,
Capital Local Area Bank Ltd, Krishna Bhima
Samruddhi Local Area Bank Ltd, Subhadra Local
Area Bank Ltd., Kolhapur
• Foreign Banks Banking Law 25
 Privileges and Facilities of Scheduled
Banks
1. Rediscounting facility
2. Lending on Bank rate
3. Remittance Facility
4. Foreign Exchange Business
5. Clearing House Facilities
6. Loan in Foreign Currencies

Banking Law 26
Commercial Banks in Public and Private
Sector
• Public Sector Banks – those which are under
the Control of the Government .
• Private Sector Banks
– Bank of Punjab
– Bank of Rajasthan
– Centurion Bank
– Karnataka Bank
– HDFC Bank etc

Banking Law 27
 Reserve Bank of India and Commercial
Banks
1. Commercial Banks maintain Accounts with RBI
2. RBI as Banker to Scheduled Commercial Banks
3. RBI controls the Activities of Commercial Banks
4. RBI issues Licence to Commercial Banks/Branches
5. Power to accord licence to Banking Companies
6. Power to Inspect the Commercial Banks

Banking Law 28
 Reserve Bank of India and Commercial
Banks
7. Overall control over management of Banks
8. Power to control the volume of credit
9. Selective Credit Control
0. Loans and Advances-Statutory and other Restrictions
1. Qualitative Control of Credit Instruments-
(a) The Bank Rate
(b) Open Market Operations
(c) Variable Cash Reserve Requirements..\New Microsoft Office Word
Document.docx
2. Variable Reserve Requirements
(a) CRR
(b) SLR
Banking Law 29
Bank Rate : is the rate of interest at which the Reserve Bank
of India re- discounts the first class Bills of Exchange from
Commercial Banks or other eligible paper. Whenever the
RBI wants to reduce credit, the bank rate is raised and
whenever the volume of bank credits is to be expanded the
bank rate is reduced.

Open Market Operations: refers to the buying and selling of

government Bonds by the RBI.
The Central Bank uses OMO as a Monetary tool to regulate
money supply in the economy (cash base of the CB)
Banking Law 30
• Repo means- an instrument for borrowing funds by selling
securities of the Central Government or state Government
or such securities of local authorities with an agreement to
repurchase the said securities on mutually agreed future
date at an agreed price which includes interest for the funds
borrowed.

• Reverse Repo means - an instrument for lending funds by

purchasing securities of the Central Government or State
Government or local authorities on behalf of Central
Government or Foreign securities with an agreement to
resell the said securities on mutually agreed future date at
an agreed price which includes interest for the funds lent.

Banking Law 31
Banking Law 32
Banking Law 33
 CRR- 4%
SLR -19.5%
Repo – 6.25%
Reverse repo- 6%
Bank rate-8.75%- 9.45%

Banking Law 34
 CRR and SLR
• Sec-42 (1) 0f RBI requires to maintain cash
reserves minimum 3% -and which can go up to
maximum of 15% their Demand and Time
liabilities (scheduled bank including Co-operative
banks RRBs)
• 18. Cash reserve.––Non- scheduled bank, shall
– maintain cash reserve by way of balance in a current
account with the Reserve Bank or by way of net
balance in current accounts at least 3% of the total of
its demand and time liabilities in India

Banking Law 35
Banking Law 36
 Functions of Commercial Banks
1. Essential / Primary Functions
1. Accepting of Deposits (FD, SD, CD, RD)
2. Lending of Money
3. Issuing of Notes
4. Remittance of Funds
5. Use of Cheque
2. Subsidiary and
Miscellaneous Functions
1. Agencies Services
2. General Utility Services
3. International Banking Services
4. Merchant Banking Services
5. Para Banking activities/ Services
6. Collection of Cheques, use of Credit Cards, Trustees,
Accepting Bills of ExchangeBanking
etcLaw 37
• Merchant Banking Services
A merchant bank is a financial institution which
provides capital to companies in the form of share ownership instead
of loans. A merchant bank also provides advisory on corporate
matters to the firms they lend to.
Banks undertake "project appraisals" with linkage to resource raising
plans from Capital Market/ Debt Markets and facilitate tie-ups with
Banks / Financial Institutions and Potential Investors.

• Agriculture Consultancy Services

• Corporate Advisory Services
• Mergers and Acquisitions
• Buy Back Assignments
• Share Valuations

Banking Law 38
In Banking a merchant banking is Financial institution
primarily engaged in offering financial servicers and advice to
corporations and wealthy individuals on how to use their
money.
Any person who is engaged in the business of issue
management either by making arrangements regarding selling,
buying or subscribing to securities as manager, consultant,
advisor or rendering corporate advisory service in relation to
such issue management”.
Banking Law 39
• Banks are extending services through single
window / “In house” concept in the following
areas: (Canara Banks
• Merchant Banking
• Commercial Banking
• Investments
• Underwriting
• Loans

Banking Law 40
• Para-Banking Activities
• The activities which are done by a Bank apart from its normal day to day
transactions ( like deposit , withdrawal etc..) are called Para-Banking Activities /
Operations.

Examples for the Para-Banking activities that a Bank normally involves:

1.Global Debit Card
2.Global Credit Card
3.Bank assurance
4.Life Insurance Products
5. Cash Management (Cash Management is formally defined as "the systematic
gathering of information about a firm's collections, disbursements, and balances to
effectively manage funds available to the firm". )
6. Non Life Insurance Products
Any insurance other than ‘Life Insurance’ falls under the classification of General
Insurance (Non Life Insurance).

Example : Policy covers such as coverage of machinery against breakdown or loss

or damage during the transit.
– Policies that provide marine insurance covering goods in transit by sea, air,
railways, waterways and road andBanking
cover Law the hull of ships. 41
Banking Law 42
 Licensing of Banking Companies
• Introduction – U/S 22 of Banking Regulation Act
1949, issue license for banking companies
• Procedure –
• Every banking company in existence on the
commencement of this Act, before the expiry of
six months from such commencement, and every
other company before commencing banking
business shall apply in writing to the Reserve Bank
for a licence

Banking Law 43
 • Conditions
1. Satisfied by an inspection of the books of the company
2. Company is or will be in a position to pay its present or future
depositors in full as their claims accrue
3. Interests of its present or future depositors
4. Management of the company will not be prejudicial to the public
interest of its present or future depositors
5. Company has adequate capital structure and earning prospects
6. Public interest will be served by the grant of a license to the
company
7. Grant of the license would not be prejudicial to the operation and
consolidation of the banking system consistent with monetary
stability and economic growth
8. Any other condition- in the opinion of the Reserve Bank, be
necessary

Banking Law 44
Banking Law 45
 State Bank of India and associates
• Imperial Bank of India
• State Bank of India Act 1955
• Evolution of SBI
• State Bank of India ( Subsidiary Banks ) Act, 1959
• State Bank of Bikaner & Jaipur
• State Bank of Hyderabad
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Travancore
• State Bank of Saurashtra merged with SBI – 13 Aug 2008
• State Bank of Indore merged with SBI –26 Aug 2010
• SBI and Branches
Banks – 16,260 In rural- 5,609 Semi urban-4,907
Urban -3,094 Metropolitan -2,650 branches
Banking Law 46
 State Bank of India and associates
Functions
1. Central Banking
A. Banker to the Government
B. Banker to banks in a limited way
C. Maintenance of currency chest
D. Acts as clearing house
E. Renders promotional functions
2. Ordinary banking

Banking Law 47
 Regional Rural Banks(RRBs)
• The Narasimham committee on rural credit recommended the
establishment of RRBs on the ground that they would be much better
suited than the commercial banks or co-operative banks in meeting
the needs of rural areas. Accepting the recommendations of the
Narasimham committee, the government passed the Regional Rural
Banks Act, 1976. A significant development in the field of banking
during 1976 was the establishment of 19 Regional Rural Banks (RRBs)
under the Regional Rural Banks Act‚1976.
• The RRBs were established “An Act to Provide for the incorporation
regulation and winding up of RRBs with a view to developing the
rural economy by providing, for the purpose of development of
agriculture, trade, commerce, industry and other productive
activities in the rural areas, credit and other facilities, particularly to
small and marginal farmers, agricultural labourers, artisans and
small entrepreneurs, and for matters connected therewith and
Banking Law 48
incidental thereto” .
• Functions
• (a) granting loans and advances to small and marginal farmers and
agricultural laborers‚ whether individually or in groups, and to
cooperative societies‚ including agricultural marketing societies‚
agricultural processing societies‚ cooperative farming societies‚
primary agricultural credit societies or farmers’ service societies‚
primary agricultural purposes or agricultural operations or other
related purposes, and
• (b) granting loans and advances to artisans‚ small entrepreneurs and
persons of small means engaged in trade‚ commerce‚ industry or
other productive activities‚ within its area of operation.

• The Reserve Bank of India has brought RRB’s under the ambit of
priority sector lending on par with the commercial banks. They have
to ensure that 40% of their advances are accounted for the priority
sector. Within the 40% priority target, 25% should go to weaker
section or 10% of their total advances to go to weaker section.
Banking Law 49
 Regulation by the RBI/ NABARD
• Open branches- permission from RBI- Recommendation of
NABARD
• Liberalization of Branch licensing Norms for Expansion of
RRBs
– Simplified the conditions to open branch
1. It should not have defaulted in maintenance of SLR and CLR
during the last 2 years
2. Operational profits- NPA(Non-Performing Assets) ratio of 8%
New areas of functions
FCNR(B) Foreign currency non resident
NRE/ NRO non resident external/ non resident rupee ordinary (
account)

Banking Law 50
RRBs objectives
•Bridging the credit gap in rural areas
•Check the outflow of rural deposits to urban areas
•Reduce regional imbalances and increase rural employment
generation

The main objectives of setting up the RRB

•Is to provide credit and other facilities‚ especially to the small
and will operate within the local limits specified by notification.
marginal farmers‚ agricultural labourers artisans and small
entrepreneurs in rural areas.
•Each RRB will also establish branches or agencies at places
notified by the Government.
•RRB is sponsored by a public sector bank‚ which provides
assistance in several ways‚ viz., subscription to its share capital‚
provision of such managerial and financial assistance as may be
mutually agreed upon and help the recruitment and training of
personnel during the initial period of its functioning( 5 years). 51
Banking Law
• Financial Institutions
• Export Credit Guarantee Corporation (ECGC)
• Export Import Bank (Exim Bank)
• Industrial Development Bank of India (IDBI)
• Industrial Finance Corporation of India (IFCI)
• Unit Trust of India (UTI)
• Industrial Investment Bank of India (IIBI)
• Investment by Insurance Companies
• National Small Industries Corporation (NSIC)
• Non-Banking Financial Company (NBFC)
• Risk Capital and Technology Finance (RCTF)
• Small Industries Development Bank of India (SIDBI)
• National Housing Bank (NHB)
• National Bank of Agriculture and Rural Development (NABARD)
• State Financial Corporations (SFCs) State Industrial Development Corporations (SIDCs)
• Tourism Finance Corporation of India (TFCI)
• Industrial Credit and Investment Corporation of India Ventures (ICICI Ventures)
• North Eastern Development Finance Corporation (NEDFi)
• Infrastructure Development Finance Company (IDFC)
Banking Law 52
• Industrial Credit and Investment Corporation of India (ICICI)
 Banking Regulation Act 1949
• Introduction
• Definition
– Webster’s dictionary-bank is an institution which
deals in money an establishment ,where money is
deposited, maintained and issued…’
Dr H.L.Hart -defines ‘A banker is one who in ordinary
course of his business, honours drawn upon him by
persons from and whom he receives money on
current accounts

Banking Law 53
• Sec 5 Banking Regulation Act of 1949 – interpretation-
– S .5 (b) ‘banking’ means the accepting, for the purpose of
lending or investment , of deposits of money from public,
repayable on demand or otherwise, and withdrawal by cheque,
draft, order or otherwise
• (c ) ‘Banking company’ means any company which transacts
the business of banking in India;

Explanation. — Any company which is engaged in the manufacture of goods or

carries on any trade and which accepts deposits of money from the 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;
•

Banking Law 54
• "demand liabilities" means liabilities which must
be met on demand, and "time liabilities" means
liabilities which are not demand liabilities;
• (ffb) "Exim Bank" means the Export-Import Bank
of India established under section 3 of the
Export-Import India Act, 1981 (28 of 1981);
• (ha) "National Bank" means the National Bank for
Agriculture and Rural Development established
under section 3 of the National Bank for
Agriculture and Rural Development Act, 1981;

Banking Law 55
• (n) "secured loan or advance" means a loan or
advance made on the security of assets the market
value of which is not at any time less than the amount
of such loan or advance; and "unsecured loan or
advance" means a loan or advance not so secured;
• (na) "small-scale industrial concern" means an
industrial concern in which the investment in plant and
machinery is not in excess of seven and a half lakhs of
rupees or such higher amount, not exceeding twenty
lakhs of rupees, as the Central Government may, by
notification in the Official Gazette, specify in this
behalf, having regard to the trends in industrial
development and other relevant factors;
Banking Law 56
6. Forms of business in which banking companies
may engage. –(1) (a) –to (o).BANKI15122014.pdf

7. Use of words "bank", "banker", "banking", or

"banking company “

10-A. Board of Directors to include persons with

professional or other experience

Banking Law 57
• 10-A. Board of Directors to include persons with
professional or other experience
• (2) 51% of the total number of members of the Board of
Directors of a banking company shall consist of persons,
who—
• (a) shall have special knowledge or practical experience in
respect of one or more of the following matters, namely:
– (i) accountancy
– (ii) agriculture and rural economy,
– (iii) banking,
– (iv) co-operation,
– (v) economics,
– (vi) finance,
– (vii) law,
– (viii) small-scale industry,
– (ix) any other matter, the special knowledge of, and
practical experience in, which would, in the opinion of the
Reserve Bank, be useful Banking
to the
Law banking company: 58
• Provided that out of the aforesaid number of
directors, not less than two shall be persons having
special knowledge or practical experience in
respect of agriculture and rural economy,
co-operation or small-scale industry;

• (2A)- (i) director of a banking company, other than

its Chairman or whole-time director, by whatever
name called, shall hold office continuously for a
period not exceeding 8 years;

Banking Law 59
• 10-B. Banking company to be managed by
whole-time Chairman
– Chairman shall exercise his powers subject to the
superintendence, control and direction of the Board of
directors.
– Managing director, and chairman hold office -- period of
5 years.
– Eligible for re-election of reappointment
• Chairman and whole-time Managing Director shall
be a person who has special knowledge and
practical experience of
– In banking company or
– In SBI or subsidiary bank or a financial institution or
– Financial, economic or business administration
Banking Law 60
• 10-BB. Power of Reserve Bank to appoint
Chairman of a banking company
– RBI- Chairman of the Board of Directors and Managing
Director appointed on a whole-time basis or whole-time
employment of the banking company
– Hold office – not exceeding 3 years
– Eligible for re-appointment
– pay and allowances – from Reserve Bank
– removed from office only by the Reserve Bank.
• 10-C. Chairman and certain directors not to be
required to hold qualification shares in the banking
company.
Banking Law 61
Section-11. Requirement as to minimum paid-up capital
and reserves

• In the case of a banking company incorporated outside

India

– aggregate value of its paid-up capital and reserves shall not

be less than 15 lakhs of rupees

– Place of business in city of Bombay or Calcutta or both, -20

lakhs of rupees

– banking company shall deposit with the Reserve Bank either

in cash or in the form of securities, or partly in cash and
partly in the form of securities
Banking Law 62
17. Reserve Fund.––(1) Every banking company
incorporated in India shall create a reserve fund –
min 20 % of profit of each year

– banking company appropriates any sum or sums from

the reserve fund of the share premium account, 21 days
from the date of such appropriation, report the fact to
the Reserve Bank explaining the circumstances relating
to such appropriation

– Reserve Bank may, in any particular case, extend the said

period of 21 days by such period as it thinks fit or
condone any delay in the making of such report.
Banking Law 63
• 18. Cash reserve.––Every banking company, except a
scheduled bank, shall
– maintain cash reserve by way of balance in a current account
with the Reserve Bank or by way of net balance in current
accounts at least 3% of the total of its demand and time
liabilities in India
– before the 20th day of every month- submit a return to RBI
– (a) "liabilities in India" shall not include––
(i) the paid-up capital or the reserves or any credit balance in the
profit and loss account of the banking company;
(ii) any advance taken from the RBI or from the Development
Bank or from the Exim Bank or from the Reconstruction Bank
or from the National Housing Bank or from the National Bank
or from the Small Industries Bank by the banking company;
(iii) in the case of a RRB, also any loan taken by such bank from its
sponsor Bank; Banking Law 64
20. Restrictions on loans and advances– banking
company shall not
• (a) grant any loans or advances on the security of its
own shares, or
• (b) enter into any commitment for granting any loan
or advance to or on behalf of––
– (i) any of its directors,
– (ii) any firm in which any of its directors is interested as
partner, manager, employee or guarantor
– (iv) any individual in respect of whom any of its
directors is a partner or guarantor

Banking Law 65
• 20-A. Restriction on power to remit debts- (1)
banking company without prior approval of the
Reserve Bank, remit in whole or in part any debt
due to it by––
– (a) any of its directors, or
– (b) any firm or company in which any of its directors is
interested as director, partner, managing agent or
guarantor, or
– (c) any individual if any of its director is his partner or
guarantor.
Any remission made in contravention of the
provisions of sub- section (1) shall be void and of no
effect.
Banking Law 66
 19. Restriction on nature of subsidiary companies––
1) A banking company shall not form any subsidiary
company
- except a subsidiary company formed for the
Purposes-
✔ u/s -6 any business of banking company
✔ with the prior permission in writing of the RBI, to carry
business of banking exclusively outside India,
✔ RBI with prior approval of the Central Government,
undertake business to spread banking in India or
necessary in the public interest

Banking Law 67
21. Power of Reserve Bank to control advances by
banking companies
Public interest or
interest of depositors or
banking policy
RBI directions- Sec 21 (2) (a) to (e)
Purpose
Margins –secured advances
Max amount of advances-paid up capital reserves
Max amount-guarantees
Rate of interest

Banking Law 68
Sec- 22 licensing of banking companies
hold license
License with condition
Writing(before or in 6 months)
Inspection of books of the company
Other conditions
❖ Present and future depositors
❖ Management of the company- public interest
❖ Adequate capital structure
❖ Granting license- public interest, monetary stability and
economic growth
❖ Other condition in the opinion of RBI

Banking Law 69
 Cancel of license
✔ Ceases to carry banking business
✔ Fails to comply conditions
✔ Conditions not fulfilled

Appeal to Central Government - 30 days

RBI has full right to refuse or grant the license

Banking Law 70
 Sec- 23 Restrictions on opening of new, and
transfer of existing, place of business
Prior permission
(a) in India
(b) out side India
Exception- not exceeding one month, exhibition, a
conference, or a mela or any other like occasion

Banking Law 71
Section – 24 Maintenance of a percentage of assets
Scheduled Bank
✔ Average daily balance- value shall not be less than
40% of the total of its demand and time liabilities
✔ Day’s default- penal interest – 3%
✔ Default occurs again- penal interst-5%
✔ Director, manager or secretary of the banking
company- defaults– punishable with 500 rupees
fine- further fine of 500 rupees fine

Banking Law 72
 ❑ Section 25- Assets in India
At the close of business on last Friday of every
quarter- 75% of demand and time liabilities
( March, June, September or December )

❑ Section 26- Return of unclaimed deposits.

10 years – RBI
RRB- National Bank- RBI

Banking Law 73
• Section 29 Accounts and balance-sheet
• 12 months- 31st day of March
• Incorporated in India or out side
• Prepare- balance sheet and profit and loss account
• In the forms – III scheduled
• balance sheet and profit and loss account-shall be
signed
• In India – manager, principal officer of the company,
director of the company – at least 3 directors
• Out side India - manager, principal officer of the company,

Banking Law 74
• Section 30 – Audit
• Audit - auditor of the companies
• Any contrary – before appointing or reappointing or
removing any auditor- RBI approval
• Pubic interest- interest of banking company- direct
by order- special audit- such transaction or class of
transaction or for period or periods-
• Expenses or incidental- banking company
• Powers and functions-(s – 227 of companies Act)
• Report-
Banking Law 75
Section 31- Submission of returns
❖ Auditor’s report- published – 3 copies– 3 months
❖ Extending – not more than 3 months

Section 32- Copies of balance- sheets and

accounts to be sent to registrar

Banking Law 76
Section 35- Inspection
✔ inspection-one or more officers
✔ Scrutiny- one or more officers -copy
✔ On Report-
i. Prohibit- fresh deposits
ii. u/s 38 winding up banking company

Banking Law 77
Section 35A- Power of RB to give Direction
❖ Public interest
❖ Interest of banking policy
❖ Depositors interest
❖ Maintain proper management
❖ Cancel or Modify the direction

Section - 35B. Amendments of provisions relating to

appointments of managing directors, etc., to be
subject to previous approval of the Reserve Bank.

Banking Law 78
Section 36- Further powers and functions of Reserve
Bank
a) Prohibit particular business
b) Amalgamation
c) Grant loan and advance
d) Public interest or interest of banking policy- prevent affairs
of banking company
Terms and conditions
I. Meeting of its directors- discuss the affairs of banking company
II. Depute one or more officers-Send report
III. Communications relating – meeting
IV. Appoint one or more officers- observe -banking affairs- Report RBI
V. Changes – management
Annual report by RBI to Central Govt-
Progress
Suggestions
RBI- appoint Staff- efficient performance
Banking Law 79
 Control over management
36AA. Power of Reserve Bank to remove managerial and
other persons from office.
In writing by order-remove- director, chairman, chief
executive officer, or other officer or employee
Reasonable opportunity
Appeal to central govt.- with in 30 days
Cease to be director, chairman, chief executive officer, or
other officer or employee -5years
Punishment- 250 rupees for each day
Appoint suitable officer
Hold office – 3 year
No claim – loss or termination of office
Banking Law 80
36AB. Power of Reserve Bank to appoint
additional directors,
❖ Public interest
❖ Interest of banking policy
❖ Depositors interest
In writing –appointment- one or more persons-
additional directors
✔ Hold office- pleasure of Reserve Bank- 3 years- further 3
years
✔ No qualification shares

Banking Law 81
 Prohibition of certain activities in
relation to banking companies
36AD. Punishments for certain activities in
relation to banking companies.
- No person shall
• obstruct any person
• Hold office- violent or prevents normal business
• Act – manner calculated to undermine
-Confidence of the depositors
Punishment- 6 months imprisonment or 1000
rupees fine or both

Banking Law 82
 38. Winding up by High Court
High Court order-
a. Unable to pay its debts or under section 37,
b. Winding up by RBI
✔ U/S 11
✔ U/S 22
✔ Prohibited to receive fresh deposits
✔ Failed to comply the requirements U/S 11 Continued

Section 38 A – Court Liquidator – by Central Govt. -winding up

proceedings

Banking Law 83
 Other powers of RBI
S- 45- Power or RBI to apply to Central Govt. for
suspension of business by a banking company and
to prepare scheme of reconstitution of
amalgamation
S- 45Q- Power to inspect
S-45R- Power to call for returns and information
S-45U- Power of High Court to make rules
S-45Y- Power of Central Govt. to make rules for the
preservation of records
S-46 – Penalties
Banking Law 84