Banking Regulation Act,1949

Objective of BR Act

• Regulation of business of banking

companies
 Public Sector Banks
• Created by
Banking Companies (Acquisition and
Transfer of Undertaking) Act, 1970
(Bank Nationalisation Act)

• Regulated by Banking Regulation Act,

1949 as prescribed
 Banking

• Banking means accepting, for the

purpose of lending or investment, deposit
of money from public, repayable on
demand or otherwise and withdrawal by
cheque, draft or otherwise

sec. 5(b)
 Business of banking
• Primary business-acceptance of deposits
• Borrowing of money
• Lending – secured or unsecured
• Investments in all kinds of securities
• Dealing with bills of exchange, p- notes
• Dealing in forex, bullion, stocks, bonds
• Letters of credit
 Business of banking
• Safe deposit vaults
• Public/ private issue of Govt, corporate
securities
• Guarantees and indemnities
• All other business conducive /incidental to
above
• Any other business notified by Central
Govt.
 Bank, Banker, Banking,
Banking Co
• Above words can be used only by a
banking company in its name
• Every Banking co has to use one of above
• No individual or association can use these
names
• Any association of Banks can use -IBA,
IIBF
s.7
 Minimum Capital
• Indian Bank – Rs. 10 lacs
• Foreign Bank – Rs. 20 lacs (to keep in cash
/ appvd securities in RBI)

• Subscribed capital = ½ authorised capital

• Paid up capital = ½ subscribed capital

(s. 11,12)
 New Private Banks

• Paid up Capital required – Rs. 500 cr

Capital in Nationalised Banks

• Authorised capital -- Rs. 3000 cr

• Board can increase paid up capital, in c/w
RBI and prior sanction of CG
• Increase by CG/ IPO/ Private placement/
Right Issue/ Bonus Issue
s. 3 Bk. Nat. Act
Capital in Nationalised Banks
• CG holding not to be less than 51%
• Voting rights of shareholders (except
CG)--- 10 % of total voting power(Max)
• Voting rights of Preference shareholders
- 10% (Max)
• Shares (other than CG) freely transferable
 Voting Rights of shareholder

• Shareholding of 5% or more by a person

requires RBI approval

• Max 10 % of total voting rights (RBI empowered

to increase it to 26% in a phased manner)

s.12(2)
 Reserve Fund
• Min 20 % profit each year to be transferred to
Reserve Fund
• CG can waive this condition, on adequacy of
paid up capital + reserves
• Also applicable to PSBs

s.17
 Bank subsidiaries
• Can be formed only for business permissible
for banking cos - with RBI approval
• For business exclusively outside India (with
RBI approval)
• For any other purpose prior approval of
CG/RBI reqd.

s.19
 Restrictions on
Loans / advances
• On security of own shares
• To its Directors
• Any firm in which Director is partner or
employee
• Any co in which Director is director or
employee (except in Govt. co. or its
subsidiary)
s.20
 RBI power to control Advances
• RBI has power to formulate policy on
Banking advances
• When expedient in interest of public,
depositors
• It may relate to purpose, margins, amount,
rate of interest
• Banks bound to follow such policy
s.21
 RBI Power
to give directions to Banks
• In public interest
• In the interest of depositors
• In the interest of banking policy
• Secure proper management of Bank
• Banks bound to comply with directions

sec. 35 A
 Rate of interest
• Interest rates on advances deregulated

• No judicial scrutiny of rates of interest on

ground of being excessive

s.21A
 SLR

• RBI prescribes from time to time

• Max. 40% of DTL in India
• Present SLR – 18%
• To be maintained in approved securities
• Monthly return to be submitted to RBI

s. 24
 SLR
• SLR is in addition to CRR
• Shortfall – penal interest at 3 % above
Bank Rate
• Consecutive default- 5%
• Calculation of SLR to be certified by
Statutory Auditor
 SLR approved assets
• Cash
• Surplus cash under CRR
• Gold
• Approved securities– T- Bills, G-sec, State
Dev Loans
 CRR – RBI Act
• Each Bank to maintain cash balance with
RBI at prescribed percentage of DTL in India
as average daily balance

• Current CRR- 4 %
• No interest paid on CRR balance

s.42(1)
 CRR

• If shortfall, penal interest at 3% over Bank

rate ( 5% from next fortnight)

• Liabilities excluded- capital, reserves,

loans from RBI, PSBs, PFIs, SBI group,
Banks, FIs
 Assets in India

• Assets not less than 75 % of DTL, to be in

India
• As on last Friday of each quarter
• Monthly return of Assets and Liabilities to
be submitted to RBI

s.25
 Balance Sheet
• B/S and P/L as per Third Schedule
• Audit by qualified auditor
• RBI approval reqd. for Auditor
• To be signed by three Directors
• To be published
• Copy to ROC
• RBI can direct special audit of any
transaction (s.29,30)
 Inspection by RBI
• RBI can conduct inspection of any Bank
• CG may also direct RBI to conduct
inspection of any Bank (incl. Foreign
Bank)
• On examination of report, if found
detrimental to interests of public/
depositors, CG can order Bank to stop
accepting fresh deposit or winding up
s.35
 Management
• 50 % Directors of Bank to be experts
• Min 2 from agriculture/ rural
economy/cooperation/ SSI
• Appointment /Reappointment/Termination
of Chairman/MD/WTD/CEO need prior
approval of RBI
 Management
• RBI can make changes in Management
including removal
• RBI has also power to appoint additional
directors
• RBI has power to order Bank to call
General Meeting to elect fresh directors
• Common directors not allowed in two
banks
 Chairman
• Chairman to be full time Director
• If not, full time MD to be appointed with
approval of RBI
• Both to work under supervision and control
of Board
• Max tenure- 5 yrs (re-election allowed)
• No qualification shares required
 Licensing of Banks
• RBI license mandatory to start bank
• Prior approval also required for new
branches in Tier I cities and overseas
branches
• Foreign banks allowed on equality basis

s.22,23
 Applicability to PSBs
• PSBs governed by Special Laws
• Most provisions of BR Act applicable to
PSBs also
• BR Act applicable to SBI
• Exceptions – capital, common directors,
audit, licensing, control over mangmt.,
winding up
•