CENTRAL BANKING

REGULATION AND
RECENT CHANGES
 HIGHLIGHTS
Salient Features of Banking Regulation
Act,1949
Recent Reforms in Banking Sector in
India and its Impact

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The Banking Regulation Act, 1949 is one of
the important legal frame works. Initially
the Act was passed as Banking Companies
Act,1949 and it was changed to Banking
Regulation Act 1949. Along with the
Reserve Bank of India Act 1935, Banking
Regulation Act 1949 provides a lot of
guidelines to banks covering wide range of
areas. 3
OBJECTIVES OF THE BANKING
REGULATION ACT 1949
1.To safeguard the interest of the depositor
2. To develop banking institutions on sound lines
3.To attune the monetary system and credit system
to the larger interest and priorities of the nation
SOCIAL CONTROL ON BANKS
1. Banking system grew tremendously after independence in terms
of bank deposit and credits
2. After 1960 it was observed that banks were not discharging their
function in consonance with democratic socialism
3. The objective underlying was to ensure equitable and purpose
distribution of bank credit.
4. By introducing the policy of Social Control Policy 1967 5
IMPORTANT PROVISIONS:BANKING REGULATION
ACT 1949

◈ Sec 5-b Defines banking

◈ Sec 5-f Demand Liabilities and Time Liabilities
◈ Sec 6-1 Banking company and nature of banking
business
◈ Sec 6-2 Restriction on Banking Business other than
specified in sec 1
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◈ Sec 7 For banking business carrying on banking business in
India(bank, banker , banking or banking company)
◈ Sec 10 Management: Prohibition on employment like Chairman,
Director(period of office not more than 5years)
◈ Sec11 and 12:Paid up capital, reserves, rules
Foreign banks: Min 15lakh(20 lakhs for Mumbai and Kolkata)
Domestic banks: Not less than 5 lakh
Ratios of authorised, subscribed and paid up capital:4:2:1
Voting rights can be more than 10% by single shareholder
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◈ Sec 17-1 To create a reserve fund and 20% of the profits
to transferred before declaration of dividend
◈ Sec 18- Cash Reserves to be maintained by non
schedule banks 3% of time and demand liabilities with
RBI in cash in current account
◈ Sec 19-Permits banks to form subsidiary company

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◈ Sec 19-2 No banking company shall hold shares in any
company whether as pledgee, mortgagee or absolute
owner of any amount exceeding 30% of the paid up share
capital
◈ Sec 20 Banks cannot grant loan against security of their
own shares
◈ Sec 21 Control over advances by RBI
◈ Sec 21A Rates of Interest ..banking companies cannot be
subject to scrutiny by courts 9
◈ Sec 22 Licensing of Banking Companies obtaining
license from RBI is essential
◈ Sec 23 Branch Licensing Restriction on opening new
and transfer of existing place of business
◈ Sec 24 Statutory Liquidity Ratio every bank to
maintain% of its net demand and time liabilities way
of cash ,gold, unencumbered securities,Max 40%

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◈ Sec 26 Unclaimed Deposit Return of unclaimed deposit
(10 years and above )within 30 days of close of year
calendar year to RBI
◈ Sec 29 A bank has to publish its Balance Sheet as on last
working day of March every year on Form A and profit
and loss account on Form B,of 3rd schedule of this Act
◈ Sec 35 Inspection of Banks RBI authorized to inspect the
banks
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◈ Sec 35A Power of RBI to give directions in the interest of the
public
◈ Sec 35AA Central Government can direct RBI to instruct a
banking to initiate Insolvency Resolution Process under IBC
2016
◈ Sec 35AB RBI can issue directions to a bank for resolution of
stressed assest
◈ Sec 36 RBI can terminate any chairman or any employee of
the bank where it considers desirable
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◈ Sec 45 RBI has power to apply to central government for
suspension of banking business of a banking company and
prepare scheme for reconstitution or amalgamation
◈ Sec 45Y Preservation of Records-10 years(Anti money
laundering)Prevention of Money laundering Act 2002

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◈ Sec 45ZA-ZF Nomination Facilities on bank deposits of
articles and lockers
◈ Sec 47A RBI can impose penality for violations
◈ Sec 49A Other than banking company/RBI/SBI, no person
can accepts deposit of money withdraw able by cheque.

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 RECENT REFORMS IN THE BANKING SECTOR IN
INDIA
◈ Reduced CRR and SLR
◈ Deregulation of rate of interest
◈ Fixing prudential Norms
◈ Introduction of CRAR(Capital to Risk Weighted
Asset Ratio)
◈ Operational Automy
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◈ Banking Diversification

◈ New Generation Banks

◈ Improved Profitability and Efficiency

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