Characteristics of bank regulations act 1949.docx

BANKING LAW

SUBMITTED TO:

SUBMITTED BY:

Mrs. Vivek Sharma

Ankita Wilson A3256113057 L.L.B 3 Year Section ‘A’

ACKNOWLEGEMENT I take this opportunity to express my profound gratitude and deep regards to my guide Mr. Vivek Sharma for her exemplary guidance, monitoring and constant encouragement throughout the course of this subject. The blessing, help and guidance given by his time to time shall carry me a long way in the journey of life on which I am about to embark. Lastly, I thank almighty, my family and friends for their constant encouragement without which this assignment would not be possible.

Ankita Wilson

INTRODUCTION The Banking Regulation Act, 1949 is a legislation in India that regulates all banking firms in India. Initially, the law was applicable only to banking companies. But, 1965 it was amended to make it applicable to cooperative banks and to introduce other changes.

OVERVIEW The Act provides a framework using which commercial banking in India supervised and regulated. The Act supplements the Companies Act, 1956. Primary Agricultural Credit Society and cooperative land mortgage banks are excluded from the Act. The Act gives the Reserve Bank of India (RBI) to power to license banks, have regulation over shareholding and voting rights of shareholders; supervise the appointment of the boards and management; regulate the operations of banks; lay down instructions for audits; control moratorium, mergers and liquidation; issue directives in the interests of public good and on banking policy, and impose penalties. In 1965, the Act was amended to include cooperative banks under its purview by adding the Section 56. Cooperative banks, which operate only in one state, are formed and run by the state government. But, RBI controls the licensing and regulates the business operations.[

CHARACTERISTICS OF BANK REGULATIONS ACT 1949 The following are the important provisions under Banking Regulation Act, 1949 regarding control and regulation of Banking Sector in India. 

Power to call for and publish the information. Preparation of Accounts and Balance Sheets. Audit of the Balance sheet and Profit & Loss Account. Publication of Audited Accounts and Balance Sheet. Inspection of books and accounts of banking companies by RBI. Giving directions to banking companies.

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Prior approval from RBI for appointment of managing directors.

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Removal of managerial and any other persons from office.

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Power of RBI to appoint additional directors

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Moratorium under the orders of a High Court.

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Winding up of banking companies.

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Scheme of amalgamation to be sanctioned by the RBI.

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Power of RBI to apply to the

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Central Government for an order of mortal rim in respect of a banking company and for a scheme of reconstruction or amalgamation.

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Power of RBI to examine the record of proceedings and tender advice in winding up proceedings.

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Power of RBI to inspect and make its report to winding up.

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Power of RBI to call for Returns and information from the Liquidator of a Banking company.

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Issue of No Objection Certificate for change of name.

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Issue of No objection certificate for the Alteration of memorandum of a banking company. Central Government to consult the RBI for making rules regarding banking companies. Recommend to the Central Government for exempting any bank from the provisions of the Banking Regulation Act 1949.

 the requirements regarding the minimum paid-up capital and reserves for commence mint of banking business. prohibition of charge on unpaid capital. payment of dividends only after writing off all capitalized expenses.  transfer to reserve fund out of profits. (minimum 20 per cent) maintenance of cash reserves by the non- scheduled banks. (minimum 3 per cent) restrictions on holding shares in other companies.  restrictions on loans and advances to directors and others. licensing of banking companies. licences for opening of new branches and transfer of existing place of business. maintenance of a percentage of liquid as sets (slr). (minimum 25 per cent and maximum 40 per cent)  maintenance of assets in india by a banking company. (minimum 75 per cent of dtl) submission of return of unclaimed deposits.

SALIENT FEATURES OF BANKING LAWS (AMENDMENT) BILL 2012 A. The Banking Laws (Amendment) Bill 2011 was introduced in order to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The said Bill has been passed by both the Houses of Parliament during its just concluded Winter Session. This Bill would strengthen the regulatory powers of Reserve Bank of India (RBI) and to further develop the banking sector in India. It will also enable the nationalized banks to raise capital by issue of preference shares or rights issue or issue of bonus shares. It would also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore. Beside above, the Bill would pave the way for new bank licenses by RBI resulting in opening of new banks and branches. This would not only help in achieving the goal of financial inclusion by providing more banking facilities but would also provide extra employment opportunities to the people at large in the banking sector. The salient features of the Bill are as follows: • To enable banking companies to issue preference shares subject to regulatory guidelines by the RBI; • To increase the cap on restrictions on voting rights; • To create a Depositor Education and Awareness Fund by utilizing the inoperative deposit accounts; • To provide prior approval of RBI for acquisition of 5% or more of shares or voting rights in a banking company by any person and empowering RBI to impose such conditions as it deems fit in this regard; • To empower RBI to collect information and inspect associate enterprises of banking companies; • To empower RBI to supersede the Board of Directors of banking company and appointment of administrator till alternate arrangements are made; • To provide for primary cooperative societies to carry on the business of banking only after obtaining a license from RBI; • To provide for special audit of cooperative banks at instance of RBI by extending applicability of Section 30 to them; and

• To enable the nationalized banks to raise capital through “bonus” and “rights” issue and also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. Certain additional official amendments have been proposed on the basis of recommendations of the Standing Committee of Finance which gave its report on the Bill on the 13th December, 2011 and has recommended enactment of the Bill, subject to the following modifications: i) Voting rights in banks may be restricted up to 26%. ii) The Depositors’ Education and Awareness Fund may be used for the purpose of promoting depositors’ interests. Further, pursuant to the discussion with Indian Banks’ Association (IBA), RBI and Industry Associations, the following additional amendments are proposed: a) to exempt guarantee agreements of banks from the purview of the section 28 of the Indian Contract Act, 1872 to bring finality to redemption of such guarantees; b) to allow select Directors on the Board of RBI a fixed maximum tenure of eight years with terms of not more than two terms of four years each either continuously or intermittently in consonance with the directions of the ACC; c) to exempt conversion of branches of foreign banks to wholly owned subsidiary entities of foreign banks and transfer of shareholding of banks to the Holding Company structure pursuant to guidelines of RBI from payment of stamp duty; and d) to ensure that unnecessary inspections are avoided and to encourage regulatory coordination, a condition has been added such that the inspection of the associate enterprise of a banking company would be conducted by RBI jointly with the sector regulator.