banking law and regulations, group-5

7/31/2019 Banking Law and Regulations, Group-5

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Banking Law and

RegulationsBy

MODERATORSFMS-FSM


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The laws related to the banking

The Banking Regulations Act, 1949 The Reserve Bank of India Act, 1934 The Negotiable Instruments Act, 1881 The Companies Act, 1956

Indian Contract Act, 1872 Information Technology Act, 2000 Limitation Act,1963, Stamp Act, 1899, Registration Act, 1908 Transfer of Property Act, 1882 Sale of Goods Act,1930 The Consumer Protection Act, 1986 Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 The Prevention of Money Laundering Act, 2002 The Competition Act, 2002


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Banking Regulation Act,1949

Definition

Banking accepting for the purpose of lending or

investment, of deposits of money from the public,repayable on demand or otherwise, and withdrawal by

cheques, draft, order or otherwise

Banking Company any company which transacts the

business ofbanking in India


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Activities of the Banking Company

Borrowing

Raising

Lending

Advancement Bill of Exchange

Bill of Lading

Promissory notes Transfer of Securities

Letters of Credit continued.


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Activities of the Banking Companycontinued.

Exchange of Foreign

currency

Underwriting and dealing with shares and stocks

Bonds

Deposits

Safe lockers

Transmitting money etc


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Other activities

Acting as agent of the government or localauthority

Clearing and forwarding goods

Contracting public loans and negotiating andissuing the same

Managing and selling of property Undertaking and executing the trusts


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Other activities

continued..

Carrying and transacting every kind of guaranteeand indemnity

Administration of estates

Supporting and aiding associations , institutionsetc

Constructions and acquisition of the propertyAll business which is incidental to the banking

business


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Businesses Prohibited for the Banks

No banking company shall directly or indirectly deal in the buying

and the selling or bartering of goods except in connection with the

realization of the security given to be held by it, To engage in any trade, or buy, sell or barter goods for others

otherwise than in connection with the bills of exchange received for

collection or negotiation..

It can have a subsidiary company as specified under the BR Act,1949


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Licensing of the Banking Companies

RBI will issue license to the banking company- after

satisfying the conditions specified under the BR Act

If the company is incorporated outside India- RBI has

to inspect the books of the company or be satisfied

with the functioning of the company,

This should be in the interest of the public or meet the

law of the country in which it is to be incorporated

without any discrimination to the foreign banks


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Cancellation of the Licenses

If the company ceases to carry on banking business in India

If the company fails to comply with any of the conditions

imposed under the BR Act

If at any time the conditions have been fulfilled or followed

Branches

Branches can be opened with the prior permission

of the RBI

NOTE :-The banking company may be Indian or Foreign


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Restrictions on Loans and Advances

No banking company can grant any loans or advanceson the security of its own shares

Enter into any commitment for granting any loan oradvance to or on behalf ofi) any of its directors

ii) any firm of which its directors is interested as partner, manager employee

or guarantor

iii) any company ( if it is not a subsidiary) where the director of the banking

company is a director, managing agent etc

iv) any individual in respect of whom any of its directors is a partner or

guarantor.


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Return and Inspection

Every banking company to submit a return

monthly statement to the RBI, showing its assets

and liabilities (last Friday of the month)

TheRegional Ruralbanks have to submit a copy

of the return to thesponsoring bank, which willin turn submit to the RBI


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Management of Banking Company

51% of directors to have special and practicalknowledge of banking, accountancy, agriculture andrural economy, co-operation, economics, finance, law,small scale industries, or any other subject as the RBI

considers to be useful to banking. The directors shall not have substantial interest as an

employee, managing director or managing agent, in anycompany (Section 25)

If they do not fulfill the criteria, RBI can ask toreconstruct the constitution of the board, if thedirection is not followed , RBI can remove thedirector's and appoint a suitable person.


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Directors and Chairman

Any director cannot be in office continuously for more than for

8 yrs.

Whole time director/chairman cannot be reappointed as directorfor the next 14 years.

A person being a director in a banking company is barred from

directorship in any other banking company.

NOTE :- Directors appointed by the RBI are exempted from

this rule.


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The Reserve Bank of India Act, 1934

Central Bank of India

Nationalized in the year 1948

It functions as a central bank, with supervisorycontrol of banks and promotional banking

Is also acts as a banker to the central and state

governments

It issues bank notes of all denominations


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It transacts the government business by

carrying out the functions such as:

Maintaining cash balances

Receiving and making payments for the government

Managing public debt Providing ways and means advances to government for

90 days

Advises government on floating loans and legislationthat affect banking.


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Bankers bankand Lender of Last Resort

Schedule banks to borrow from the RBI, based on the eligiblesecurities

To obtain financial accommodation by rediscounting their billsof exchange

It has a supervisory power on other banks, it regulates thevolume of credit generated by banks and it also makes theselective credit control mechanism.

Margin of interest rate in specific category of advances The volume of credit is normally controlled through the

regulatory instruments of bank rate( is the rate of interest at

which the RBI rediscounts the first class bills of exchange ofcommercial banks or other eligible paper) open marketoperations and variable cash reserves.

It has a control, over the interest rate on deposits and advancesby banks


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Computation of Statutory Liquidity Ratio

( S.L.R)

For Computation of statutory Liquidity Ratio the assets are:

Cash in hand ( India)

Balance in current account Balance with the RBI over the minimum reserve requirement

Investment in government securities, treasury bills and othersecurities

But this excludes the borrowings from the RBI against approvedsecurities

As per the provisions of the BR, Act of 1949 the RBI has thesupervision over the management of banks


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CRR

It is another regulatory ratio imposed by the RBI

It is the minimum cash to be maintained as percentage

against demand deposits and time deposits

Reduction in the CRR will stimulate more cash for the

banks to stimulate credit expansion

It fixed the percentage of the CRR It does fix the CRR for the NBFC also.


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Other supervisory powers

A New department called Department of BankingSupervision (DBS) has been set up.

It has been set up with a purpose to undertake offsitesupervision

It receives statutory returns which are presented by thebranches for submission to the RBI

It controls the Foreign Exchange management as acontroller and deals with buying and selling of foreign

exchange Foreign reserve position and exchange stability position

also are dealt by the RBI


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