Banking Regulation Act 1949

&
Role Of RBI
Amiya kumar sahoo
Innovation-The Business School

ABOUT RBI

RBI established on 1st April, 1935 under the

Reserve Bank of India Act 1934.
Initially it was a private sector bank & nationalized
on 1st January 1949 & with this the central
Government owned 100% capital of the bank.
The first Governer of the bank O. Smith & the first
Indian Governer was Dr. C. Desmukh.

MANAGEMENT

1.
2.
3.

Managed by a Board of Directors (total

directors twenty), which consists of :
Governor
Not more than four deputy governor
Fifteen other directors

Functions Of RBI

Note issuing Authority

Banker to Government (Central & State)

Bankers Bank

Controller of Credit
Custodian of Foreign Exchange Reserve
and Lender of the Last Resort

Note issuing Authority or Bank of Issue:

Under Section 22 of the Reserve Bank of India Act, the Bank

has the sole right to issue bank notes of all denominations
other than one rupee notes or coin & all coins issued by the
Government of India.
Issues note in denominations of rupees two, five, ten, Twenty,
fifty, one hundred, five hundred & one thousand, known as
bank Notes & carry a guarantee by the Central Government.
RBI can issue notes against the security of gold coins, gold
bullions, foreign securities, rupee coins, Govt. of India
securities & bills of exchange, promissory notes. Out of this
the value of gold coins & foreign securities should not be less
than Rs. 200 crores.

Currency chest- Apart from its issues department, the

RBI has appointed public sectors bank to acts as his
agents for distribution of currency. These banks are
required to maintain currency chests for this purpose.
RBI reimburse expenses incurred by public bank for
maintaining the currency chest.
The balance in the currency chests are the property of
the RBI.
Small coins do not form a part of the currency chest
& are stored on separate depots called as small coin
depots.

Acting as Banker to Government

RBI acts as a Government banker, agent and advisor to central

& state Governments.

RBI has the obligation to transact Government business, via.

to keep the cash balances as deposits free of interest, accepting
cheques, receiving & collecting payments, transferring funds
,to receive and to make payments on behalf of the Government
and to carry out their exchange remittance and other banking
operations.

The bank also provides Ways & Means Advances

(WMA) to both central & state Governments for
bridging the temporary gaps between receipts &
payments with a maturity of 3 months.

RBI also permits the State Government to draw

overdrafts apart from WMAs.

It acts as adviser to the Government on all monetary

and banking matters.

Controller of credit
Quantitative credit control methods:
Bank rate, CRR, SLR
Open market operations (OMO)- The sale & purchase of
Govt. securities by RBI is called OMO.
Through OMO RBI controls1. Inflation
2. Lending & borrowing power of banks
3. Money supply to market
4. Liquidity in the economy.

Custodian of Foreign Exchange Reserve

(sec 40)

Maintains the rate of exchange of the rupee

The Reserve Bank has to act as the
custodian of India's reserve of international
currencies.
RBI has the responsibility of maintaining
fixed exchange rates with all other member
countries of the I.M.F
The vast sterling balances were acquired
and managed by the Bank.

Bankers Bank and lender of last resort

Provides financial help during crisis time

Increases elasticity and liquidity of the
credit structure in the market
Enables commercial banks to carry their
activities with their limited cash reserve
Way of exercising control over banking
system

Others

Bank of settlement and clearance

Information and research functions

Banking Regulation Act - 1949

Act was originally called as Banking Companies

Act 1949.

It came into force from 16th March 1949.

Now it is renamed as Banking regulation Act

1949.

Reasons for commencement of this Act.

Provisions of the Act

1.

Definition of Banking(sec 5(b))

2.

Business of Banking Company (sec 6)

Main Functions
Subsidiary Functions
Kinds of business that can not be done

3.

Capital Requirement.

S.
N

Foreign banking co.

Amount(Rs.)

1.

If it has a place of business in Bombay or Calcutta or both

20 lacs

2.

If it has no place of business in Bombay or Calcutta

15 lacs

Indian banking co.

1.

Banking co. having place of business in more than 1 state

5 lacs

2.

Banking co. having place of business in more than 1 state &

if any such place include Bombay or Calcutta or both

10 lacs

3.

Banking co. having place of business in 1 state but none in

Bombay or Calcutta
a) For principal place of business plus
1lacs
b) For each of place in the same district plus
10000
c) For each of place in other district
25000
subject to overall limit of
5lacs
Banking co. having only one place of business and also no
branch in Bombay or Calcutta

4.

5.

a) Banking co. having place of business in only

1 state, one or more or which is or are situated in Bombay
or Calcutta or plus
5lacs
b) For each place of business outside the city
25000
c) subject to overall limit of
10lacs

50000

Continue..
4. Management

Board of Directors
Wholetime Chairman

5. Maintenance of Liquid Assets

CRR(sec 18)
No loans & advances on its own shares(sec 20)
No floating charge to any of its property(sec 14A)
Credit policy need to be followed by Banks(sec21)

Continue

Cannot be a pledgee of any immovable property for

period of exceeding 7 years(except official work)sec 9
Cannot hold shares in other cos more than 30% of paid
up capital of that co or their own(sec 19)
Restriction on granting loans to any of the its directors or
to any institution in which director is interested.
SLR
Foreign co. Should keep assets in India atleast to the
extent of 75% of total liabilities at the end of every
quarter

6. Licensing of Banks(sec 22)

1.
2.
3.

Financial status
Companies affairs are in compliance
with the rules
Foreign banks
No discrimination
Business in public interest
Comply with the provisions of Act

7.Opening of New branches(sec 23)

Prior permission from RBI(in India or

abroad) or changing location of the
existing offices.
Conditional license
Conditions to be satisfied
Prior consent not required
New licensing policy

8. Loans and Advances(sec 21)

Purpose of loan
Margin for secured advances
Amount of advances to a bank, company ,
individual or a firm
Rate of interest and other terms
Maximum amount upto which guarantee can be
given
Exceptions- No loan to director, or no loan on
security of its own shares

9. Inspection of Banks(sec 35)

RBI has a right to inspect books of accounts of

any bank
Obligation on every employee to produce all the
books
Right to examine any of the
officer/Director/employee
Either its own initiative or by order of central govt.
Report to be prepared, send to bank and Central
govt and decision to be taken.

10.Returns to be submitted

Returns of liquid assets & liabilities(sec 23(3))

Returns of unclaimed deposits(sec 26)

Monthly returns(sec 27)

Return of annual accounts(sec 31)(auditors report)

Additional information(advances)

11. Acquisition of business(sec 36 AE to AJ)

When banking co fails to comply the

directions given under sec 21 of 35A
When banking business is carried on to
the detriment of interest of the depositors
When RBI feels to provide credit in a
better way to a particular area.
Compensation is paid to shareholders.

12. Winding up of a Banking co.

If banking co. is unable to pay its debts
a) if it refused to meet any lawful demand made at any of its
offices with in 2 days(some cases 5 days).
b) If RBI certifies in writing
2)
The RBI will make an application under the following
circumstances :
a) fails to comply with the provisions of Act.
b) unable to pay debts
c) fails to implement satisfactory compromise sanctioned by court
d) against the interest of depositors
e) Liquidator
1)

13. Amalgamation of Banking Companies

(sec 44(a))

Information to shareholders and approved by two-third

majority of shareholders
Details of meeting to be given to every shareholder,
needs to be published in at least two newspapers for
three consecutive weeks
Discontented shareholders can claim their value of
shares
Amalgamation scheme has to be sanctioned by RBI
Assets & liabilities are transferred
A copy of order of amalgamation to be given to ROC

14. Powers of RBI

Discussed earlier
Power to grant moratorium
Power to appoint liquidator
Additional powers

15. Miscellaneous Provisions(penalties (sec 46))

False or inaccurate return fine & imprisonment

upto 3 years
Failure to furnish documents, accounts or
comply with the Act penalty of Rs. 2000 (plus
Rs.100 per day)
Receiving deposits in contravention of order of
RBI fine upto twice of amount
Persons responsible for fault ,shall be deemed
guilty of the default

16. Application of the Act to Co-op Bank

Co-op banks were brought under the

purview of Banking Regulation Act 1949.
The Act is not apply to all state and central
Co-op banks
This Act is not applicable to Land
development banks and agriculture credit
society.

Class Exercise

1.
2.

3.
4.
5.

Which of the following situations will lead to a

fall in the interest rates?
When there is excess money supply
When the domestic currency offered at lower
rates
When the repos are offered at lowered rates
Both 1) & 2)
Both 1) & 3)

THANK YOU!!!