RBI ACT

Provisions of RBI Act 1935

The RBI Act consists of 5 Chapters and 2 Schedules. It comprises 58

sections detailing the administrative rules of the RBI. Some of the main
provisions are explained below.

Chapter I

 It consists of two sections detailing the commencement of the RBI

and the definition of terms listed in the statute.

Chapter II: It provides details regarding Incorporation, Capital,

Management, And Business. Section 3 to section 19 is provided in this
chapter.

 Section 3

o It establishes the Reserve Bank of India to take over the

management of the currency from the Central Government
and to carry out banking operations in accordance with the
Act's requirements.

 Section 4
o It defines the RBI's capital, which is Rs. 5 crores.
 Section 7

o It gives the central government the authority to provide

orders to the bank in the public interest from time to time,
in conjunction with the RBI Governor.
o The Central Board of Directors also has superintendence
and direction over the affairs and business of the RBI under
this clause.

 Section 17

o This section discusses the RBI's operations. The RBI can

accept interest-free deposits from the federal and state
governments.
 o It has the ability to buy and sell bills of exchange from
commercial banks. It has the ability to buy and sell foreign
currency through banks.
o It has the ability to lend to banks and state-owned financial
institutions.
o It can help the federal government and state governments
in development.
o It has the ability to buy and sell government securities.
o It has the ability to trade derivatives, repo, and reverse repo.

 Section 18

o This section discusses bank emergency loans.

Chapter III: It lists down the Central Bank functions from section 20 to
section 45.

 Section 21

o The RBI is tasked with acting as the central government's

banker and managing public debt under this section.

 Section 22

o It empowers the Reserve Bank of India (RBI) to issue

currency.

 Section 24

o The maximum denomination note allowed under this rule is

₹10,000.

 Section 28

o It authorizes the Reserve Bank of India (RBI) to create laws

governing the exchange of damaged and faulty notes.

 Section 31

o This section states that the Reserve Bank of India and the
Indian government can only issue and accept promissory
notes that are due on request in India.
  Section 42(1)

o Every scheduled bank must maintain an average daily

balance with the RBI, according to this provision.
o The Cash Reserve Ratio (CRR) requirement was established
under this section.

Chapter IIIA: It empowers the central bank to collect and furnishing of

credit information from section 45A to 45G.

 Section 45B

o The bank can collect information regarding credit from

banking companies.

Chapter IIIB: It provides provisions relating to Non-Banking Institutions

receiving deposits and financial institutions from section 45H to 45N.

 Section 45K

o The bank can collect information from non-banking

institutions regarding deposits, statements and to give
directions.

​ Chapter IIIC: It mentions the prohibition of acceptance of deposits by

unincorporated bodies from section 45R to section 45T.

 Section 45S

o No unincorporated individual, firm, or association can

accept deposits.

Chapter IIID: It gives information regarding the regulation of

transactions in derivatives, money market instruments, securities,
etc from section 45U to section 45X.

 Section 45W

o The Bank in the public interest can regulate the financial

system of the country to its advantage and determine the
policy relating to interest rates or interest rate products and
give directions on that behalf to all agencies.
Chapter IV - General Provisions from section 46 to section 58A

 Section 46

o The Central Government has to transfer a sum of Rs.5 crore

to the Reserve Fund in the form of securities.

 Section 49

o The bank from time to time publishes the bank rate.

 Section 57

o The Companies Act doesn’t apply to the banks and the

banks can’t be liquified under it.

Chapter V - Penalties from section 58B to section 58G

 Section 58C

o If a company defaults, then every person in charge of the

company is responsible.

 Section 58G

o If the defaulting entity is a nonfinancial company then the

company can impose fines.

First Schedule

 This divides the zonal limits of the RBI into North, East, West, and
South.

Second Schedule
Second Schedule

 This lists down all the Scheduled Commercial Banks.

Conclusion

The RBI Act 1935 gives a framework for the administration of the
Reserve Bank of India. It is amended time and again to ensure that the
central bank is equipped and can offer better services for the
commercial banks and carry out an effective monetary policy.