THE BANKING REGULATION

ACT,1949
Preamble of regulatory Act
An Act to consolidate and
amend the law relating to
banking.
WHEREAS it is expedient to
consolidate and amend the
law relating to banking .
Introduction
The Banking companies act, presently known as banking regulation act was
enacted owing to safeguard the interest of depositors, control abuse of
power by some bank personnel controlling the banks in particular and to the
interest of Indian economy in general.
The Banking Regulation Act was passed as the Banking Companies Act 1949
and came into force w.e.f 16.3.49. Subsequently it was changed to Banking
Regulations Act 1949 wef 01.03.66.
However, it should be remembered that this act does not supersede the
provision of companies act or any other law for the time being in force in
respect of banking business.
Definition of banks

In India, the definition of the business of banking has been given in the Banking
Regulation Act, (BR Act), 1949. According to Section 5(c) of the BR Act, 'a
banking company is a company which transacts the business of banking in
India.' Further, Section 5(b) of the BR Act defines banking as, 'accepting, for the
purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable, by cheque, draft, order
or otherwise.'
This definition points to the three primary activities of a commercial bank which
distinguish it from the other financial institutions. These are: (i) maintaining
deposit accounts including current accounts, (ii) issue and pay cheques, and (iii)
collect cheques for the bank's customer
Different provisions of Banking regulations
Act
S. No. Parts Topics Sections covered
1. I Preliminary 1 to 5A
2. II Business of Banking Companies 6 to 36 A
3. IIA Control over management 36AA to 36AC
4. IIB Prohibition of certain activities in relation to banking
Companies
36AD
5. IIC Acquisition of the undertakings of Banking
Companies in certain cases
36AE to 36AJ
6. III Suspension of business and winding up of Banking
Companies
36B to 45
7. IIIA Speedy provision for speedy disposal of winding up
proceedings
45A to 45X
8. IIIB Provision relating to certain operation of Banking
Companies
45Y to 45ZF
9. IV Miscellaneous 46 to 55A
10. V Application of the Act to cooperative Banks 56
Applicability of the Banking Regulation Act,
1949
This Act applies to following categories of Banks:
1: Nationalized Banks
2: Non-Nationalized Banks
Cooperative Banks
Business of banking Companies
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of
money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit vaults
Continued

Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues
Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security
Undertaking and executing trusts
Continued

Acquiring, constructing, maintaining and altering of any
building for the purpose of the bank
Acquiring and undertaking the whole or part of the
business of any person or bank / company if its nature of
business is as per the allowed business for the bank

Doing all such other things as are incidental or conducive to
the promotion or advancement of the business of the bank
Any other business the Central Govt. may by notification
specify as a allowed business
Banks are prohibited to do any other business


Use of words bank, banker, banking or banking
company

(1) No company other than a banking company shall use as part of its name 15[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.
(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 sub-section (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).]
Applicability against other laws

Provisions of the Banking regulation Act, 1949 are
not in substitution of other laws applicable,
unless otherwise expressly said (Section 2 sub 56
(b)
Act is not applicable to
1 Primary Agricultural Society
2 Co-operative Land Mortgage Bank
3 Any other co-operative society except as provided
by Sec. 56(Section 3)
Banking Policy
Banking Policymeans policy specified by RBI from time to time in the interest of
-Banking system
-Monitory stability
-Sound economic growth
-Interest of depositors
-Volume of deposits and other resources of the bank
-Efficient use of the deposits and resources ..Section 5(ca)
Cash Reserve (CRR)
Section 18 r. w. 56 (j)
Every bank is required to keep cash reserve, with itself or by
way of balance in the current account with RBI or Central /
District Co-operative Bank or net balance in all such way, of
minimum prescribed % amount of its DTL as of last Friday of
fortnight
A return about this has to be submitted to RBI before 15thof
each month about alternate Friday
SLR
(Statutory Liquidity Ratio)
Bank shall maintain
unencumbered approved
securities, valued not exceeding
the current market price, or an
amount which shall not be less
than 24% of the total of its
demand and time liabilities
(DTL)
Restrictions on loans and advances
(1) Notwithstanding anything to the contrary contained in section 77 of
the Companies Act, 1956 (1 of 1956), no banking company shall,
(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, or
(iii) any company [not being a subsidiary of the banking company or a
company registered under section 25 of the Companies Act, 1956 (1 of
1956), or a Government company] of which 61[or the subsidiary or the
holding company of which] any of the directors of the banking company is
a director, managing agent, manager, employee or guarantor or in which
he holds substantial interest, or
(iv) any individual in respect of whom any of its directors is a partner or
guarantor.
Licensing of banking companies
68[(1) Save as hereinafter provided,
no company shall carry on banking
business in India unless it holds a
licence issued in that behalf by the
Reserve Bank and any such licence
may be issued subject of such
conditions as the Reserve Bank may
think fit to impose.]
(2) 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 69[in
India], shall apply in writing to the
Reserve Bank for a licence under this
section.
Power to publish information
The Reserve Bank or the National
Bank, or both, if they consider it in
the public interest so to do, may
publish any information obtained
by them under this Act in such
consolidated form as they think fit.
Power of the Reserve Bank to give
directions
(a) in the 134[public interest]; or
135[(aa) in the interest of banking policy; or]
(b) to prevent the affairs of any banking company being
conducted in a manner detrimental to the interests of the
depositors or in a manner prejudicial to the interests of the
banking company; or
(c) to secure the proper management of any banking company
generally,
it is necessary to issue directions to banking companies
generally or to any banking company in particular, it may, from
time to time, issue such directions as it deems fit, and the
banking companies or the banking company, as the case may
be, shall be bound to comply with such directions.
(1) Where
the
Reserve
Bank is
satisfied
that
Continued.
(2) The Reserve Bank may, on
representation made to it or on its own
motion, modify or cancel any direction
issued under sub-section (1), and in so
modifying or cancelling any direction may
impose such conditions as it thinks fit,
subject to which the modification or
cancellation shall have effect.
Amendments of provisions relating to appointments of
managing directors, etc., to be subject to previous approval
of the Reserve Bank.
no amendment of any provision relating to the maximum
permissible number of directors .
no appointment or re-appointment or termination of appointment
of a chairman.
Further powers and functions of Reserve Banks.
1.(a) caution or prohibit banking companies or any banking
company in particular against entering into any particular
transaction or class of transactions, and generally give advice to any
banking company;
(b) on a request by the companies concerned and subject to the
provision of section 149[44A], assist, as intermediary or otherwise,
in proposals for the amalgamation of such banking companies;
(c) give assistance to any banking company by means of the grant of
a loan or advance to it underclause (3) of sub-section (1) of section
18 of the Reserve Bank of India Act, 1934 (2 of 1934);

(2) The Reserve Bank shall make an annual report to the Central
Government on the trend and progress of banking in the country, with
particular reference to its activities under clause (2) of section 17 of the
Reserve Bank of India Act, 1934 (2 of 1934), including in such report its
suggestions, if any, for the strengthening of banking business
throughout the country.
(3) The Reserve Bank may appoint such staff at such places as it
considers necessary for the scrutiny of the returns, statements and
information furnished by banking companies under this Act, and
generally to ensure the efficient performance of its functions under this
Act.
Certain provisions of the Act not to apply to
certain banking companies.
(1) The provisions of section II, sub-section (1) of section 12, and sections
17, 18, 24 and 25 shall not apply to a banking company
(a) which, whether before or after the commencement of the Banking Companies
(Amendment) Act, 1959 (33 of 1959), has been refused a licence under section 22, or
prohibited from accepting fresh deposits by a compromise, arrangement or scheme
sanctioned by a court or by any order made in any proceeding relating to such compromise,
arrangement or scheme, or prohibited from accepting deposits by virtue of any alteration
made in its memorandum; or
(b) whose licence has been cancelled under section 22, whether before or after the
commencement of the Banking Companies (Amendment) Act, 1959 (33 of 1959).
(2) Where the Reserve Bank is satisfied that any such banking company as is referred to in
sub-section (1) has repaid, or has made adequate provision for repaying all deposits
accepted by the banking company, either in full or to the maximum extent possible, the
Reserve Bank may, by notice published in the Official Gazette, notify that the banking
company has ceased to be a banking company within the meaning of this Act, and
thereupon all the provisions of this Act applicable to such banking company shall cease to
apply to it, except as respects things done or omitted to be done before such notice.]
CONTROL OVER MANAGEMENT
36AA. Power of Reserve Bank to remove managerial and
other persons from office.
(a)36AAA. Supersession of Board of directors of a multi-
State co-operative bank.
(b)36AAB. Order of winding up of multi-State co-
operative bank to be final in certain cases
(c)Reimbursement to Deposit Insurance Corporation by
liquidator or transferee bank
36AB. Power of Reserve Bank to appoint
additional directors,
36AC. Part IIA to override other laws.
36AD. Punishments for certain activities
in relation to banking companies.
SUSPENSION OF BUSINESS AND WINDING
UP OF BANKING COMPANIES
High Court defined.
Suspension of business.
Winding up by High Court.
Court liquidator.
Reserve Bank to be official liquidator.
Application of Companies Act to liquidators.
Thank you