legal & regulatory aspect of banking (module - c

8/12/2019 Legal & Regulatory Aspect of Banking (Module - C

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LEGAL & REGULATORY ASPECTS OF BANKING

MODULE A. REGULATIONS &COMPLIANCE

The questions in this section will be with reference to legal issues and problems.

A.Provisions of RBI Act 19!" Ban#ing Regulation Act 19$9" Ban#ing %ompanies &Acquisition and Transfer

'nderta#ings Act 19() * 19+),. B. -overnment and RBIs Powers

/pening of 0ew Ban#s and Branch icensing

%onstitution of Board of 2irectors and their Rights

Ban#s 3hareholders and their Rights

%RR43R %oncepts

%ash4%urrenc5 6anagement

7inding 'p 8 Amalgamation and 6ergers

Powers to %ontrol Advances 8 3elective %redit %ontrol 8 6onetar5 and %redit Polic5

Audit and Inspection

3upervision and %ontrol8Board for inancial 3upervision 8 Its 3cope and Role

2isclosure of Accounts and Balance 3heets

3ubmission of Returns to RBI" etc.

%orporate -overnance

MODULE B - LEGAL ASPECTS OF BANKING OPERATIONS

%ase aws on Responsibilit5 of Pa5ing4%ollecting Ban#er

Indemnities4-uarantees

3cope and Application

/bligations of a Ban#er

Precautions and Rights

aws Relating to Bill inance" % and 2eferred Pa5ments

aws Relating to 3ecurities

:aluation of 3ecurities 8 6odes of %harging 3ecurities 8 ien" Pledge" 6ortgage" ;5pothecation" etc.

Registration of irms4%ompanies

%reation of %harge and 3atisfaction of %harge

MODULE C - BANKING RELATED LAWS

aw of imitation

Provisions of Ban#ers Boo#


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Asset Reconstruction %ompanies

The 3ecuritisation and Reconstruction of inancial Assets and ))?

o#Adalats

ender@s iabilit5 Act

MODULE D - COMMERCIAL LAWS WITH REFERENCE TO BANKING OPERATIONS

Indian %ontract Act" 1+(> Indemnit5" -uarantee" Bailment" Pledge and Agenc5" etc.

The 3ale of -oods Act" 19) 3ale and Agreement to 3ell" 2efinitions" %onditions and 7arranties" " 2efinition and T5pes of Partnership" Relation of Partners to /ne Anothe

Relation of Partners to Third Parties" 6inor Admitted to the Benefits of Partnership" 2issolution of irm" ))>

Right to Information Act" >))!

Information Technolog5 Act" >)))

CONTENTS

MODULE A - REGULATIONS AND COMPLIANCE

1. egal ramewor# of Regulation of Ban#s

>. %ontrol /ver /rganisation of Ban#s

. Regulation of Ban#ing Business

$. Returns" Inspection" 7inding 'p

!. Public 3ector Ban#s and %o8operative Ban#s

MODULE B - LEGAL ASPECTS OF BANKING OPERATIONS

?. %ase aws on Responsibilit5 of Pa5ing Ban#

(. %ase aws on Responsibilit5 of %ollecting Ban#

+. Indemnities

9. Ban# -uarantees

>


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T;< A7 / I6ITATI/0

9. imitations of 3uits" Appeals and Applications

TAF A73

$). Income Ta=" Ban#ing %ash" Transaction Ta=" ringe Benefit Ta= and 3ervice Ta=

MODULE D - COMMERCIAL LAWS WITH REFERENCE TO BANKING OPERATIONS

$1. 6eaning and . %ontracts of Indemnit5

$. %ontracts of -uarantee

$$. %ontract of Bailment

$!. %ontract of Pledge

$?. %ontract of Agenc5

$(. 6eaning and . 2irectors

?. oreign

?!. The Right to Information Act" >))!

??. Right to Information and /bligations of Public Authorities

?(. The Prevention of 6one5 aundering Act" >))>

?+. Information Technolog5 Act" >)))

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MODULE-A REGULATIONS AND COMPLIANCE

'nit 1. egal ramewor# of Regulation of Ban#s

'nit >. %ontrol over /rganisation of Ban#s

'nit . Regulation of Ban#ing Business

'nit $. Returns" Inspection" 7inding 'p

'nit !. Public 3ector Ban#s and %o8operative Ban#s

UNIT 1: LEGAL FRAMEWORK OF REGULATION OF BANKS

3TR'%T'R Business of Ban#ing

1. %onstitution of Ban#s

1.$ Reserve Ban# of India Act" 19$

1.! Ban#ing Regulation Act" 19$9

1.? Reserve Ban# as %entral Ban# and Regulator of Ban#s

1.( -overnment as a Regulator of Ban#s

1.+ %ontrol /ver %o8operative Ban#s

1.9 Regulation b5 /ther Authorities

1.1) et 's 3um 'p

1.0 OBJECTIVES

The obGectives of this 'nit are to understand

The definition and nature of the business of ban#ingH

The constitution of different t5pes of ban#sH

The regulator5 scheme of the rbi act and the br actH

The role of the reserve ban# and the central government as regulatorsH and

The special position of public sector ban#s and co8operative ban#s.

1.1 INTRODUCTION

Ban#ing in India is mainl5 governed b5 the Ban#ing Regulation Act" 19$9 and the Reserve Ban# of India Act" 19$. Th

Reserve Ban# of India and the -overnment of India e=ercise control over ban#s from the opening of ban#s to their windin

up b5 virtue of the powers conferred under these statutes.

All the regulator5 provisions are not uniforml5 applicable to all ban#s. The applicabilit5 of the provisions of these Acts to

ban# depends on its constitutionH that is" whether it is a statutor5 corporation" a ban#ing compan5 or a co8operative societ

In this unit" we loo# at the definition of ban#ing" the constitution of different t5pes of ban#s and applicabilit5 of regulato

laws" the general framewor# of the regulator5 laws and the role of regulators namel5" the Reserve Ban# of India and th

government.

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1.2 BUSINESS OF BANKING

I. Def!"#! #f B$!%!:Ban#ing is defined in 3ection !b of the Ban#ing Regulation Act as the acceptance

deposits of mone5 from the public for the purpose of lending or investment. 3uch deposits ma5 be repa5able o

demand or otherwise and withdrawable b5 cheque" draft" order or otherwise. Thus" a ban# must perform tw

essential functions i acceptance of public deposits" and ii lending or investment of such deposits. The deposi

ma5 be repa5able on demand or for a period of time as agreed b5 the ban#er and the customer. In terms of th

definition" the ban#er can accept deposits of mone5 and not an5thing else. urther" accepting deposits from thpublic implies that a ban#er accepts deposits from an5one who offers mone5 for such purpose. ;owever" a ban#

can refuse to open account for undesirable persons and further" the opening of accounts is subGect to certa

conditions li#e proper introduction and identification.

The Dnow Cour %ustomer guidelines issued b5 the Reserve Ban# require ban#s to follow certain custom

identification procedure for opening of accounts for protecting the ban#s from frauds" etc." and also for monitorin

transactions of a suspicious nature for the purpose of reporting to appropriate authorities for ta#ing anti8mone

laundering measurers and combating financing of terrorism.There is no e=haustive definition of ban#ing

%ommon aw of th


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the word ban# as part of its name 3ee" 3ection ( of the Act and no compan5 other than a ban#ing compan5 ca

use the words ban#" ban#er" ban#ing as part of its name. urther" no firm" individual or group of individuals

permitted to use the words ban#" ban#ing or ban#ing compan5 as a part of the name or for the purpose

business. 3ubsidiaries of ban#s and association of ban#s in certain cases as also Primar5 %redit 3ocieties a

e=empted from this restriction.

:. Pe+3""e* B(!e((: Although" traditionall5" the main business of ban#s is acceptance of deposits and lending" th

ban#s have now spread their wings far and wide into man5 allied and even unrelated activities. The forms

business permissible under 3ection ?1 of the Ban#ing Regulation Act" apart from ban#ing business" a

summarised below

a

1. Borrowing" raising or ta#ing up of mone5H

>. ending or advancing of mone5 either upon securit5 or without securit5H

. 2rawing" ma#ing" accepting" discounting" bu5ing" selling" collecting and dealing in bills of e=chang

hundis" promissor5 notes" coupons" drafts" bills of lading" railwa5 receipts" warrants" debenture

certificates" scrips and other instruments and securities whether transferable or negotiable or notH

$. -ranting and issuing of letters of credit" travellers@ cheques and circular notesH

!. Bu5ing" selling and dealing in bullion and specieH

?. Bu5ing and selling of foreign e=change including foreign ban# notesH

(. Acquiring" holding" issuing on commission" underwriting and dealing in stoc#" funds" shares" debenture

debenture stoc#" bonds" obligations" securities and investments of all #indsH

+. Purchasing and selling of bonds" scrips and other forms of securities on behalf of constituents or othersH

9. 0egotiating of loans and advancesH

1). Receiving of all #inds of bonds" scrips or valuables on deposit or for safe custod5 or otherwiseH

11. Providing of safe deposit vaultsH and

1>. %ollecting and transmitting of mone5 and securities.

b

c %ontracting for public and private loans and negotiating and issuing the same.

d Insure" guarantee" underwrite" participate in managing and carr5ing out an5 issue of state" municipal or oth

loans or of shares" stoc#" debentures or debenture stoc# of companies and lend mone5 for the purpose of an

such issue.

e %arr5 on and transact ever5 #ind of guarantee and indemnit5 business.

f 6anage" sell and realise an5 propert5 which ma5 come into its possession in satisfaction of an5 of its claims.

g Acquire" hold and deal with an5 propert5 or an5 right" title or interest in an5 such propert5 which ma5 form t

securit5 for an5 loan or advance.

h 'nderta#e and e=ecute trusts.

i 'nderta#e the administration of estates as e=ecutor" trustee or otherwise.

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# Acquire" construct and maintain an5 building for its own purpose.

l 3ell" improve" manage" develop" e=change" lease" mortgage" dispose of or turn into account or otherwise de

with all or an5 part of the business of an5 person or compan5" when such business is of a nature described

3ection ?.

m Acquire and underta#e the whole or an5 part of the business of an5 person or compan5" when such business

of a nature described in 3ection ?.

n 2o all such things which are incidental or conducive to the promotion or advancement of the business of th

compan5"

o 2o an5 other business specified b5 the %entral -overnment as the lawful business of a ban#ing compan5. Th

%entral -overnment has accordingl5 specified leasing and factoring as permissible business for ban#s.

:I. P+#)"e* B(!e((: 3ection + of the Ban#ing Regulation Act prohibits a ban#ing compan5 from engaging direct

or indirectl5 in trading activities and underta#ing trading ris#s. Bu5ing or selling or bartering of goods directl5

indirectl5 is prohibited. ;owever" this is without preGudice to the business permitted under 3ection ?1 of the Ac

Accordingl5" a ban# can realise the securities given to it or held b5 it for a loan" if need arises for the realisation

the amount lent. It can also bu5 or sell or barter for others in connection with i bills of e=change received f

collection or negotiation" and ii underta#ing the administration of estates as e=ecutor" trustee" etc. -oods for th

purpose of this 3ection means ever5 #ind of moveable propert5" other than actionable claims" stoc#s" shares" mone

bullion and specie and all instruments referred to in %lause a of sub83ection 1 of 3ection ?.

As regards immoveable properties" 3ection 9 prohibits a ban#ing compan5 from holding such propert5" howsoever acquire

e=cept as is required for its own use" for a period e=ceeding seven 5ears from the acquisition of the propert5. The Reserv

Ban# ma5 e=tend this period b5 another five 5ears" if it is satisfied that such e=tension would be in the interest of th

depositors of the ban#ing compan5. The ban#ing compan5 shall be required to dispose of such propert5 within the permitt

period.

1.4 CONSTITUTION OF BANKS

I. B$!%( ! I!*$ f$ !*e+ #!e #f ")e f##,! 2$"e#+e(:

a Bod5 corporate constituted under a special statuteH

b %ompan5 registered under the %ompanies Act" 19!? or a foreign compan5H

c %o8operative societ5 registered under a central or state enactment on co8operative societies.

II. P2 Se2"#+ B$!%(: The public sector ban#s including nationalised ban#s" 3tate Ban# of India and its associat

subsidiaries and the Regional Rural Ban#s fall in the first categor5. B5 the Ban#ing %ompanies Acquisition an

Transfer of 'nderta#ings Act" 19() and the Ban#ing %ompanies Acquisition and Transfer of 'nderta#ings Ac

19+) the %entral -overnment nationalised too# over the business underta#ings of certain ban#ing companies an

vested them in newl5 created statutor5 bodies corresponding new ban#s constituted under 3ection of th

19()419+) Act. The 3tate Ban# of India was constituted under the 3tate Ban# of India Act" 19!! and the s

associate4subsidiar5 ban#s were constituted under the 3tate Ban# 3ubsidiar5 Ban#s Act" 19!9 or other statut

3ee Para !.>.?. The regional rural ban#s are constituted under the Regional Rural Ban#s Act" 19(?. These ban

are governed b5 the statutes creating them as also some of the provisions of the Ban#ing Regulation Act and th

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Reserve Ban# of India Act. The details are discussed in 'nit !.

III. B$!%! C#3'$!e(: A ban#ing compan5" as defined in 3ection !c of the Ban#ing Regulation Act is a compan

which transacts the business of ban#ing. 3uch compan5 ma5 be a compan5 constituted under 3ection of th

%ompanies Act or a foreign compan5 within the meaning of 3ection !91 of that Act. All the private sector ban#s a

ban#ing companies. These ban#s are governed b5 the %ompanies Act" 19!? in respect of their constitution and b

the Ban#ing Regulation Act and the RBI Act with regard to their business of ban#ing.

I:. C#-#'e+$"5e B$!%(: A co8operative ban# is a co8operative societ5 registered or deemed to have been register

under an5 %entral Act for the time being in force relating to the multi8state co8operative societies" or an5 oth

central or state law relating to co8operative societies for the time being in force. If a co8operative ban# is operatin

in more than one state" the %entral Act applies. In other cases" the state laws appl5. The Ban#ing aws Applicatio

to %o8operative 3ocieties Act" 19?! e=tended certain provisions of the Ban#ing Regulation Act and the Reserv

Ban# of India Act to the co8operative ban#ing sector. After the 3upreme %ourt held in Ape= %oJoperative Ban#

case AI R >))$ 3% 1$1 that multi8state co8operative societies cannot be licensed as co8operative ban#s" th

Ban#ing Regulation Amendment and 6iscellaneous Provisions Act" >))$ was enacted to permit licensing

multi8state co8operative ban#s. A multi8state coJoperative ban# under this Act means a multi8state co8operativ

societ5 which is a primar5 co8operative ban#.

1.6 RESERVE BANK OF INDIA ACT7 1846

I. The Reserve Ban# of India Act" 19$ was enacted to constitute the Reserve Ban# of India i to regulate the issu

of ban# notes" ii for #eeping reserves for securing monetar5 stabilit5 in India" and iii to operate the currenc5 an

credit s5stem of the countr5 to its advantage. The Act came into force on ?th 6arch 19$. The Act has bee

amended from time to time to meet the demands of changing times. The last amendment to the Act was effected b

the RBI Amendment Act" >))?.

II. The Act deals with the constitution" powers and functions of the Reserve Ban#. It does not directl5 deal wi

regulation of the ban#ing s5stem e=cept for 3ection $>" which provides for cash reserves of scheduled ban#s to b

#ept with the Reserve Ban#" with a view to regulating the credit s5stem and ensuring monetar5 stabilit5. urthe

3ection 1+ of the Act provides for direct discount of bills of e=change and promissor5 notes when a special occasio

arises" ma#ing it necessar5 or e=pedient for the purpose of regulating credit in the interests of trade" industr5 an

agriculture. The Act" in short" deals with

a Incorporation" capital" management and business of the ban#

b The central ban#ing functions li#e issue of ban# notes" monetar5 control" acting as ban#er to government an

ban#s" lender of last resortH

c %ollection and furnishing of credit informationH

d Acceptance of deposits b5 non8ban#ing financial institutionsH

e -eneral provisions regarding reserve fund" credit funds" publication of ban# rate" audit and accountsH and

f Penalties for violation of the provisions of the act or the directions issued thereunder.

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1.9 BANKING REGULATION ACT7 1868

I. The Ban#ing Regulation Act" 19$9 was enacted to consolidate and amend the law relating to ban#ing and to provi

for a suitable framewor# for regulating the ban#ing companies. Initiall5" the Act provided for regulation of ban#in

companies onl5" but in 19?! the Act was amended to cover co8operative ban#s as well with certain modification

3ee" 3ection !?. ;owever" the Act" as provided in 3ection " does not appl5 to primar5 agricultural credit societi

and co8operative land mortgage ban#s. The provisions of the Act are applicable to ban#ing companies in addition

other laws which are applicable to such companies" unless otherwise specificall5 provided in the Act. Thu

%ompanies Act" 19!? which deals with the incorporation and wor#ing of companies is applicable to ban#in

companies e=cept where special provisions are made in the Ban#ing Regulation Act in that regard.

II. The Act regulates entr5 into ban#ing business b5 licensing as provided in 3ection >> thereof. The Act also pu

restrictions on the shareholding" directorship" voting rights and other aspects of ban#ing companies. There a

several provisions in the Act regulating the business of ban#ing such as restriction on loans and advances" rates

interest to be charged" requirement as to cash reserve and maintenance of percentage of assets" etc. There a

provisions regarding audit and inspection and submission of balance sheets and accounts. The Act provides f

control over the management of ban#ing companies and also deals with the procedure for winding up of th

business of the ban#s and penalties for violation of its provisions. In short" the Act deals with

Regulation business of ban#ing companiesH

%ontrol over the management of ban#ing companiesH

3uspension and winding up of ban#ing businessH and

Penalties for violation of the provisions of the act.

1. RESERVE BANK AS CENTRAL BANK AND REGULATOR OF BANKS

I. The Reserve Ban# was constituted under 3ection of the Reserve Ban# of India Act" 19$ for ta#ing over th

management of currenc5 from the %entral -overnment and carr5ing on the business of ban#ing in accordance wi

the provisions of the Act. /riginall5" under the RBI Act" the Ban# had the responsibilit5 of

a regulating the issue of ban# notesH

b #eeping of reserves for ensuring monetar5 stabilit5H and

c generall5 to operate the currenc5 and credit s5stem of the countr5 to its advantage.

II. The Reserve Ban# is a bod5 corporate having perpetual succession and common seal and shall sue and be sued in

name. The whole capital of the ban# is held b5 the %entral -overnment. The Ban# has its central office in 6umb

and offices in 6umbai" Dol#ata" 2elhi and %hennai" and branches at most of the state capitals and some other citie

III. The ban# functions under the general superintendence and directions of the %entral Board of 2irectors. The ban

has to abide b5 the directions given b5 the %entral -overnment in public interest after consultation with th

-overnor of the ban#. The board shall consist of a -overnor and not more than four 2eput5 -overnors to

appointed b5 %entral -overnment and other directors nominated b5 the %entral -overnment. Apart from the %entr

Board" the ban# has also local boards situated at 6umbai" Dol#ata" 2elhi and %hennai" which perform an5 du

delegated to them b5 the %entral Board. The -overnor has the power of general superintendence and direction

the affairs of the ban# and e=ercise all powers of the ban# unless otherwise provided in the regulations made b5 th

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%entral Board. The 2eput5 -overnors" > of the RB

Act. The ban# ma5 issue notes of different denominations from Rs. > to Rs. 1)"))) as the %entral -overnment ma

decide on the recommendations of the %entral Board of the ban#. 3uch notes shall be legal tender at an5 place

India.

:. The ban# is the ban#er to the %entral -overnment under 3ection >) of the Act" and accordingl5 it is obligator5

underta#e ban#ing business for the %entral -overnment. In the case of state governments" their ban#ing business

underta#en b5 the ban# based on agreements as provided in 3ection >1 A. Ban# provides wa5s and means

advances to the %entral and state governments. These are temporar5 advances to meet immediate needs when the

is interval between e=penditure and flow of revenue.

:I. The role of the ban# as regulator of ban#ing sector is mainl5 b5 virtue of the provisions of the Ban#ing Regulatio

Act" 19$9. In e=ercise of the powers under that Act the ban# regulates the entr5 into ban#ing business b5 licensin

e=ercises control over shareholding and voting rights of shareholders" e=ercises controls over the manageri

persons" and regulates the business of ban#s. The ban# also inspects ban#s and e=ercises supervisor5 powers" an

ma5 issue directions from time to time in public interest and in the interest of the ban#ing s5stem with respect

interest rates" lending limits" investments and various other matters.

:II. The maGor powers of the Reserve Ban# in the different roles as regulator and supervisor can be summed u

as under

a Power to licenceH

b Power of appointment and removal of ban#ing boards4personnelH

c Power to regulate the business of ban#sH

d Power to give directionsH

e Power to inspect and supervise ban#sH

f Power regarding audit of ban#sH

g Power to collect" collate and furnish credit informationH

h Power relating to moratorium" amalgamation and winding upH and i power to impose penalties.

1.; GOVERNMENT AS A REGULATOR OF BANKS

I. The Reserve Ban# is the primar5 regulator of ban#s. But the %entral -overnment has also been conferred e=tensiv

powers under the RBI Act and BR Act either directl5 or indirectl5 over the ban#s.

II. The government holds the entire capital of the Reserve Ban# and appoints the -overnor. The government has al

the necessar5 in public interest after consultation with the -overnor. Thus" the government can e=ercise control ov

ban#s b5 influencing decision8ma#ing b5 the Reserve Ban# and has also got appellate authorit5 in respect of sever

matters in which the Reserve Ban# has been conferred the power to decide at the first instance. Thus" under th

Ban#ing Regulation Act appeal lies with the %entral -overnment on removal of managerial personnel und

3ections 1)B and ?AA of the BR Act. 3imilarl5" there are also provisions for appeal in respect of cancellation

ban#ing licence under 3ection >> and refusal of certificate regarding floating charge on assets 3ection 1$A.

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UNIT > CONTROL OVER ORGANISATION OF BANKS

STRUCTURE

>.) /bGectives

>.1 Introduction

>.> icensing of Ban#ing %ompanies

>. Branch icensing

>.$ Paid8up %apital and Reserves>.! 3hareholding in Ban#ing %ompanies

>.? 3ubsidiaries of Ban#ing %ompanies

>.( Board of 2irectors

>.+ %hairman of Ban#ing %ompan5

>.9 Appointment of Additional 2irectors

>.1) Restrictions on .11 %ontrol /ver 6anagement

>.1> %orporate -overnance>.1 2irectors and %orporate -overnance

>.1$ et 's 3um 'p

>.0 OBJECTIVES

The obGectives of this unit are to understand the laws that govern ban#ing companies" in respect of

icensing and branch licensing

Paid up capital and reserves

3hareholding and rights of shareholders

ormation of subsidiaries and holding of shares of other companies

%onstitution and regulation of board of directors

.1 INTRODUCTION

The Ban#ing Regulation Act provides for regulation of the organisation of ban#ing companies. To start with" there a

restrictions at the entr5 point" b5 wa5 of licensing and then the requirement of permission for opening or shifting

branches. There are further regulations over the paid8up capital and reserves" shareholder@s rights" constitution of the boa

of directors" appointment of chairman and formation of subsidiaries. Apart from the above" there are also controls over th

managerial and other personnel" including the power to remove unsuitable persons and to appoint suitable persons. In th

unit" we stud5 various provisions of the Ban#ing Regulation Act" providing for controls over the organisation an

management of ban#ing companies.

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>.> LICENSING OF BANKING COMPANIES

I. L2e!(e Re+e3e!" f+#3 RBI:To commence or carr5 on" the ban#ing business in India" a compan5 requires

licence from the Reserve Ban# under 3ection >> of the Ban#ing Regulation Act" 19$9. %ommencing or carr5ing o

a ban#ing business without a licence is prohibited. 7hen the Act came into force" the ban#ing companies" whi

were then in e=istence were required to appl5 for licence within si= months from the commencement of the Ac

But" such ban#ing companies were permitted to continue business" unless and until their applications for licen

were reGected b5 the Reserve Ban#. The requirement of licence was meant to ensure the continuance of onl5 tho

ban#s" which were established and operating on sound lines and to prevent indiscriminate formation of ban#in

companies.

II. D(2+e"#! #f Re(e+5e B$!%:The granting of licence b5 the Reserve Ban# ma5 be subGect to such conditions as t

RBI ma5 thin# fit in each case. As held b5 the -uGarat ;igh %ourt in 3hivabhai vs RBI" Ahmedabad AIR 19+? -

19" Reserve Ban# has the discretion to grant or refuse the licence and when such decision based on relevan

material and germane considerations" the decision cannot be assailed. /nl5 if the decision is based on e=traneo

considerations or is perverse" the court will intervene.

It is open to the RBI to consider the defects or improvements revealed in an inspection held under 3ection ! of th

BR Act while disposing of an application for licence. 3ee" 3aGGan Ban# Pvt. td. vs RBI" AI R 19?1 6ad +. Th

refusal of licence to a compan5 would ma#e it ineligible to underta#e ban#ing business" but it would still be open

the compan5 to carr5 on other business li#e mone5 lending.

III. C#!*"#!( "# e S$"(fe*:Before granting a licence under 3ection >>" Reserve Ban# ma5 have to be satisfied b

an inspection of the boo#s of the ban#ing compan5 or otherwise in respect of the following matters8

a 7hether the compan5 is or will be in a position to pa5 its present and future depositors in full as their claim

accrueH

b 7hether the affairs of the compan5 are being conducted or li#el5 to be conducted in a manner detrimental to th

interests of its present and future depositorsH

c 7hether the general character of proposed management of the compan5 will not be preGudicial to public intere

or the interest of depositorsH

d 7hether the compan5 has an adequate capital structure and earning prospectsH

e 7hether public interest will be served b5 grant of licence to the compan5H

f 7hether considering the ban#ing facilities available in the proposed area of operation" the potential scope f

e=pansion of business b5 ban#s alread5 in e=istence in that area and other relevant factors" the grant of licen

would be preGudicial to the operation and consolidation of ban#ing s5stem" consistent with monetar5 stabili

and economic growthH

g The fulfilment of an5 other condition which the Reserve Ban# considers relevant in public interest or in th

interest of depositors.

Although 3ection 11 of BR Act specifies the minimum capital and reserves requirements of a ban#ing compan5" th

Reserve Ban# can stipulate a higher requirement of capital for licensing a ban#ing compan5 as under 3ection >> th

Reserve Ban# has to be satisfied that the compan5 has an adequate capital structure and earning prospects.

I:. F#+e! B$!%(: In the case of companies incorporated outside India appl5ing for a licence" apart from th

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conditions specified in the case of domestic companies" three additional conditions have been stipulated f

consideration b5 the Reserve Ban#. These are

a 7hether carr5ing on of ban#ing business b5 the compan5 in India will be in public interestH

b 7hether the government or the law of the countr5" in which the compan5 is incorporated discriminates in an

wa5 against ban#ing companies registered in IndiaH

c 7hether the compan5 complies with provisions of the BR Act" as applicable to foreign companies.

:. L#2$ A+e$ B$!%(: The Reserve Ban# has recognised the concept of local area ban#s and licensed a fewfour su

ban#s. These are ban#ing companies operating onl5 in a limited geographical area. The licence issued to these ban

would restrict their operations to the specified local area to ensure adequate ban#ing services in that area.

:I. C$!2e$"#! #f L2e!2e:3ub83ection $ of 3ection >> of the Ban#ing Regulation Act authorises the Reserve Ban

to cancel the licence granted to an5 ban#ing compan5. The cancellation of licence ma5 be on an5 one or more of th

following grounds

a The compan5 ceases to carr5 on ban#ing business in IndiaH

b The compan5 at an5 time fails to compl5 with an5 of the conditions imposed under the sub83ection 1

3ection >> of Ban#ing Regulation ActH

c The compan5 does not fulfil at an5 time" an5 of the conditions referred to in the sub83ection or A

3ection >> of Ban#ing Regulation Act.

Before cancellation of a licence for non8compliance with an5 of the conditions as above" the compan5 has to be given a

opportunit5 for ta#ing necessar5 steps for compl5ing with or fulfilling the conditions. ;owever" in cases where the Reser

Ban# is of the opinion that dela5 will be preGudicial to the interests of depositors or the public" the requirement o

opportunit5 can be dispensed with. As observed b5 the 6adras ;igh %ourt in 3aGGan Ban# P5t. td. vs RBI AIR 19?1 6a

+" the Reserve Ban# has a wide range of administrative discretion under the Act" which it is competent to e=ercise" and

cannot be said that there is an e=cessive delegation of power. A ban#ing compan5" whose licence is cancelled" can appeal

the %entral -overnment within a

>.4 BRANCH LICENSING

I. Apart from the requirement of licence for commencing or carr5ing on ban#ing business" ban#s have to obtain th

prior permission of Reserve Ban# for opening a new place of business or changing location of the e=isting place

business. 'nder 3ection > of the Ban#ing Regulation Act" @Place of business@ for this purpose includes an5 su

office" pa5 office" sub8pa5 office or an5 place at which deposits are received" cheques cashed or mone5s len

;owever" changing the location of an e=isting place of business within the same cit5" town or village would n

need such permission. These restrictions also appl5 to foreign branches of ban#ing companies incorporated in Indi

/pening of a temporar5 place of business up to one month for purpose of affording ban#ing facilities for an

e=hibition" mela" conference or li#e occasion is e=empt. ;owever" the temporar5 branch has to be within the limi

of the cit5H town or village where there is an e=isting branch or in the environs thereof. The present guidelines fro

RBI provide that Ban#s should submit their request for new branches" administrative offices" AT6s once in a 5e

for consideration of RBI as against the earlier practice of ma#ing individual applications for each and ever5 branc

7hen approved" the permission would be valid for a period of one 5ear before which the branches4 offices shou

1?


17/68

be operationalised.

II. or granting permission under 3ection >" the Reserve Ban# ma5 require to be satisfied of the following

a inancial condition and histor5 of the ban#H

b -eneral character of its managementH

c Adequac5 of capital structure and earning prospectsH

d Public interest.

This ma5 be done b5 an inspection of the ban# under 3ection ! or otherwise.

7hile granting permission for opening or shifting a branch" the Reserve Ban# ma5 impose an5 conditions which

thin#s fit necessar5. If an5 ban# fails to compl5 with such conditions" the permission ma5 be revo#ed after givin

an opportunit5 to the ban# to show cause.

III. In the case of regional rural ban#s" the applications for permission have to be routed through the 0ational Ban

0ABAR2" and the national ban# has to offer its comments on merits to the Reserve Ban#.

>.6 PAID-UP CAPITAL AND RESERVES

3ection 11 of the Ban#ing Regulation Act provides for certain minimum requirements as to paid8up capital and reserves

ban#ing companies. An5 compan5 wanting to commence ban#ing business has to compl5 with these requirements. Th

amounts stipulated have reference to the places of business. @Place of business@ for this purpose means an5 office" sub8offic

sub8pa5 office and an5 place at which deposits are received" cheques cashed or mone5s lent. In the case of an5 dispu

regarding computation of paid8up capital and reserves of an5 ban#ing compan5" the decision of the Reserve Ban# shall

final.

I. F#+e! B$!%(: 'nder the sub83ection > of 3ection 11 of the BR Act" a foreign ban# ban#ing compan

incorporated outside India operating in India" has to deposit and #eep deposited with the Reserve Ban#" an amou

of Rs.1! lacs and if it has a place of business in 6umbai or Dol#ata or both" Rs. >) lacs. The amount has to be #e

in cash" unencumbered approved securities or partl5 in both. Apart from this" an amount of twent5 per cent of th

profit for each 5ear in respect of business transacted through the branches in India as disclosed in the profit and lo

account has to be deposited with the Reserve Ban#. The securities deposited can be replaced b5 other unencumbere

approved securities or cash deposited can be similarl5 replaced b5 securities. The %entral -overnment can e=em

an5 foreign ban# from this requirement on the recommendation of the Reserve Ban# for a specified period if th

amounts deposited alread5 b5 it are considered adequate. /n the cessation of business b5 an5 foreign ban# for an

reason" these deposits shall form the assets of the compan5 on which the creditors in India shall have the fir

charge.

II. I!*$! B$!%(:In case of ban#ing companies incorporated in India" the requirements of minimum paid8up capit

and reserves under 3ection 11 are as follows

a If it has a place of business in more than one state" Rs. ! lac and if such places of business include 6umba

Dol#ata or both" Rs. 1) lac.

b If the place of business is in onl5 one state and does not include 6umbai or Dol#ata" Rupees 1 lac for i

principal place of business" plus Rs. 1)"))) for other places of business" in the same district in which th

1(


18/68

principal place of business is situated" plus an additional Rs. >)")))" for each place of business elsewhereH

total not e=ceeding Rs. ! lacs. If the ban# has onl5 one place of business" the amount is limited to Rs. !)"))).

or ban#ing companies commencing business after the commencement of the Act" paid8up capital is stipulate

as Rs ! lac.

c If places of business are in one state onl5" but one or more of them is in 6umbai or Dol#ata" Rs. ! lac" plus R

>!"))) for each place of business outside these cities and the aggregate not e=ceeding Rs. 1) lac.

2uring >))!" RBI stipulated the minimum capital requirement for a new Private Ban# at Rs )) crore as a part

%orporate -overnance guidelines and as a polic5 of oreign 2irect Investment.

III. P$*-' C$'"$7 S(2+e* C$'"$ $!* A")#+(e* C$'"$:Apart from the above" 3ection 1>1 of th

Ban#ing Regulation Act stipulates that the subscribed capital of a ban#ing compan5 shall not be less than half of i

authorised capitalH and the paid8up capital shall not be less than half of its subscribed capital. If capital is increase

this requirement has to be complied within a period not e=ceeding two 5ears as allowed b5 the Reserve Ban#.

Ban#ing companies are permitted to have onl5 ordinar5 or equit5 shares. ;owever" preference shares issued before 1 Eu

19$$ are e=empt. urther" the provisions of 3ection 1>1 are not applicable to ban#s incorporated before 1! Eanuar5 19

0ow preference shares and other capital instruments are also allowed. 3ince >))!" Ban#s have been permitted b5 RBI

raise capital even in the from of innovative debt instruments which are perpetual and perpetual non8cumulative preferen

shares in addition to the equit5 capital.

>.9 SHAREHOLDING IN BANKING COMPANIES

I. V#"! +)"( #f ()$+e)#*e+(:There is no specified ceiling on a person@s holding of shares in a ban#ing compan

under the Ban#ing Regulation Act or an5 other law. ;owever" 3ection 1>> of the Act puts certain restrictions o

voting rights of shareholders. Accordingl5" no shareholder can e=ercise voting rights in respect of the shares held b

him4her in e=cess of ten per cent of the total voting rights of all the shareholders of the ban#ing compan5. Th

provision does not in an5 wa5 affect the transfer of shares or the registration of such transfers. It onl5 puts a limit o

voting rights. ;owever" 3ection 1> bars suits or other proceedings against registered shareholders b5 an5 oth

person claiming title e=cept b5 a transferee of shares" in accordance with the law or on behalf of minors or lunati

for whom the registered shareholder holds the shares. The provisions of the %ompanies Act also govern transfer

shares of ban#ing companies.

II. A2%!#,e*e3e!" / Re(e+5e B$!%:Reserve Ban# has instructed ban#ing companies that when the5 recei

more than the specified percentage of their shares for transfer to one part5" the ban#@s board must refer the matter

the Reserve Ban#. The ban#s shall not transfer the shares without receiving Reserve Ban#@s ac#nowledgement. Th

is with a view to ensure that the controlling interest in a ban#ing compan5 does not change hands without th

#nowledge and approval of the Reserve Ban#.

III. Re'#+"( #! ()$+e)#*!:A report regarding the particulars of shareholding of the chairman" managing director

chief e=ecutive officer" b5 whatever name called" of ever5 ban#ing compan5" requires submission to the Reserv

Ban#. 3uch report should contain the full particulars and e=tent of value of shares held directl5 or indirectl5 and

an5 change in the e=tent of holding or of an5 variation in the rights attaching thereto. The Reserve Ban# ma5 als

order for an5 other information relating to those shares.

1+


19/68

I:. C#33((#!7 +#%e+$e7 *(2#!": 3ection 1 of the Ban#ing Regulation Act imposes a ceiling on t

commission" bro#erage" discount or remuneration on the sale of shares of ban#ing companies. Accordingl5" th

pa5ments on this account in an5 form should not e=ceed two8and8a8half per cent of the paid8up value of the shares

:. D5*e!*:There are also certain restrictions on the pa5ment of dividend to the shareholders of ban#ing companie

Thus" under 3ection 1! of the Ban#ing Regulation Act" no dividend is pa5able until all capitalised e=penses a

completel5 written off. 3uch e=penses include preliminar5 e=penses" organisation e=penses" share8sellin

commission" bro#erage" loss incurred and an5 other item" of e=penditure not represented b5 tangible asse

;owever" dividends are pa5able without writing off depreciation" bad debt etc." as under

a 2epreciation in value of approved securities" which is not capitalised or accounted for as a loss.

b 2epreciation in investment of shares" bonds or debentures" other than the approved securities for whic

adequate provision has been made.

c Bad debts for which an adequate provision is provided.

RBI has given detailed eligibilit5 criteria for declaration of dividend b5 ban#s and also guidelines on the quantum

dividend that can be declared b5 ban#s. The eligibilit5 criteria require a minimum 9 K of %AR and 0et 0PAs n

e=ceeding 1K. The quantum of dividend that can be declared is based on the levels of net 0PAs and in a graded lev

6a=imum $)K pa5 out ratio and can be paid out of onl5 current 5ear@s profits.

>. SUBSIDIARIES OF BANKING COMPANIES

I. F#+3$"#! #f S(*$+e(: There are certain restrictions under 3ection 19 of the Ban#ing Regulation Act on t

formation of subsidiaries b5 ban#ing companies. This is for purpose of preventing ban#s from carr5ing on tradin

activities b5 acquiring a controlling interest in non8ban#ing companies. Accordingl5" subsidiaries are permissib

onl5 for the following purposes

i. 'nderta#ing an5 business which is permissible for ban#ing companies under 3ection ?1 clauses a to o.

ii. %arr5ing on the business of ban#ing e=clusivel5 outside India. Prior permission of the Reserve Ban# is a mu

for this ban#ing business.

iii. 'nderta#ing an5 other business which Reserve Ban# with prior approval of the %entral -overnment permi

Reserve Ban# ma5 permit onl5 such other business which it considers conducive to the spread of ban#ing

India or otherwise useful or necessar5 in the public interest. The underta#ing of an5 business b5 a subsidia

will not be deemed to amount to the ban# itself ta#ing up that business directl5 or indirectl5 for the purpose

3ection +.

II. S)$+e)#*! ! #")e+ 2#3'$!e(: Apart from the restriction on subsidiaries" there is also a ceiling &3ection 19>

on shareholding in companies other than subsidiaries. Thus" the holding of shares b5 a ban#ing compan5 in an

compan5 as pledgee" mortgagee or absolute owner shall not be e=ceeding thirt5 per cent of the paid8up share capit

of that compan5 or the paid8up share capital and reserves of the ban#ing compan5. urther" holding of shares in an

compan5 in which the managing director or manager of a ban#ing compan5 is interested in or concerned with in an

manner" is prohibited e=cept in the case of subsidiaries.

>.; BOARD OF DIRECTORS

I. ?$f2$"#!(: 3ection l/Aofthe Ban#ing RegulationAct stipulates certain qualifications fordirectors of ban#in

19


20/68

companies. Accordingl5 at least fift58one per cent of the total number of directors shall be persons" who hav

special #nowledge or practical e=perience" with respect of accountanc5" agriculture and rural econom5" ban#in

cooperation" economics" finance" law" small scale industr5 or an5 other matter" the special #nowledge or practic

e=perience which is useful to the ban#ing compan5" in the opinion of the Reserve Ban#. urther" at least two of th

directors should have special #nowledge or practical e=perience in agriculture and rural econom5 or co8operation

small scale industr5.

II. S("$!"$ !"e+e(":The directors of a ban#ing compan5 shall not have a substantial interest in or be connect

with as emplo5ee" manager or managing agent in a compan5 or firm which carries on trade" commerce or indust

as per 3ection 1)A >b of the BR Act. ;owever" companies registered under 3ection >! of the %ompanies A

and small scale industrial concerns are not included for the purpose. The proprietors of trading" commercial

industrial concerns other than small scale industrial concerns are also disqualified for directorship. @3ubstanti

interest@ for this purpose is defined in 3ection > of the Ban#ing Regulation Act. Accordingl5" holding of benefici

interest b5 an5 individual or his spouse or minor child" whether singl5 or ta#en together in the shares of a compan

e=ceeding Rs. ! lacs or ten per cent of the paid8up capital of the compan5 amounts to substantial interest. In the ca

of firms" such holding of beneficial interest e=ceeding ten per cent of the total capital of the firm amounts t

substantial interest.

III. Pe+#* #f #ff2e: The directors of a ban#ing compan5 shall not hold office for more than eight 5ears continuousl

;owever" this provision is not applicable to the chairman or a whole8time director. 7hen the chairman or a whol

time director of a ban# is removed from office" he4she ceases to be a director of the ban# and shall not be eligible f

further appointment as director of that ban#ing compan5 for a period of four 5ears.

I:. Re2#!("""#! #f B#$+*: 7hen the board of a ban#ing compan5 is not constituted in accordance with t

requirements of 3ection 1)A of the BR Act" the board has to be reconstituted" to compl5 with the provisions. If an

director has to be retired for such a reconstitution" this ma5 be done b5 lots" in the prescribed manner and suc

decision shall be binding on ever5 director of the board. If the Reserve Ban# is of the opinion that the board of an

ban#ing compan5 does not fulfil the requirements" it ma5 order such a ban# to reconstitute the board after givin

reasonable opportunit5 of being heard. If" within two months@ time" the ban# does not fulfil the order of the Reserv

Ban#" the Ban# ma5 then remove an5 director determined b5 lots drawn in the prescribed manner and such

person shall cease to hold office. The Reserve Ban# ma5 also appoint a new director in the place of the perso

removed and he4she shall continue in office until the date up to which his predecessor would have held offic

;owever" an5 proceedings of a ban#ing compan5 will not be invalid onl5 because of an5 defect in the compositio

of the board.

>.< CHAIRMAN OF BANKING COMPAN=

I. W)#e-"3e C)$+3$!@M$!$! D+e2"#+:3ection 1 /B of the Ban#ing Regulation Act provides that eve

ban#ing compan5 should have a full8time or part8time chairman" appointed from among its directors. The chairma

if appointed on a whole8time basis is entrusted with the management of the entire affairs of the ban#. The chairm

on a part8time basis has to be appointed with the prior approval of the Reserve Ban# and such an appointment sha

be subGect to an5 conditions that ma5 be imposed b5 the Reserve Ban# while granting approval. In the absence of

>)


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chairman" the management of the whole of the affairs of the ban#ing compan5 shall be entrusted to a managin

director. The e=ercise of powers b5 the whole8time chairman or managing director is subGect to the superintendenc

control and directions of the board of directors. The whole8time chairman and a managing director shall hold offi

for a period not e=ceeding five 5ears as the board ma5 fi= and is also eligible for reelection or reappointmen

Although the chairman is in full8time emplo5ment of the ban#" he ma5 be a director of a subsidiar5 of the ban# or

a compan5 registered under 3ection >! of the %ompanies Act. The Reserve Ban# ma5 also permit the whole8tim

chairman or the managing director to underta#e part8time honorar5 wor# not li#el5 to interfere with the duties of th

chairman or the managing director.

The whole8time chairman or the managing director of a ban#ing compan5 ma5 continue in office at the end of th

term of the office until his4her successor assumes office" subGect to the approval of the Reserve Ban#.

II. ?$f2$"#!( #f W)#e-"3e C)$+3$!@M$!$! D+e2"#+:The whole8time chairman or the managing direct

of a ban#ing compan5 should have special #nowledge or practical e=perience of the wor#ing of a ban#ing compan

or the 3tate Ban# or a subsidiar5 ban# or a financial institution or financial" economic or business administratio

The whole8time chairman or the managing director will be disqualified under the following circumstances

a if he4she is director of a compan5 other than a subsidiar5 of the ban#ing compan5 or a charitable

b compan5 registered under 3ection >! of the %ompanies ActH

c if he4she is a partner of an5 firm which carries on trade" business or industr5H

d if he4she has substantial interest in an5 other compan5 or firm or is director" manager" managing

e agent" partner or proprietor of an5 trading" commercial or industrial concernH or

f if he4she is engaged in an5 other business or vocation.

III. Re3#5$ #f W)#e"3e C)$+3$!@M$!$! D+e2"#+:If the Reserve Ban# is of the opinion that the perso

elected to be the chairman of the board of directors and appointed on a whole time basis or the managing director

not a fit and proper person to hold such office" the Reserve Ban# ma5 require the ban#ing compan5 to remove suc

a chairman or the managing director and appoint a suitable person. ;owever" before ta#ing such an action" th

Reserve Ban# has to give such a person" as also the ban#ing compan5" a reasonable opportunit5 of being heard.

the ban#ing compan5 does not compl5 with the order within two months" the Reserve Ban# ma5 remove the perso

from the office and appoint a suitable person in his4her place. 3uch a chairman or managing director would contin

in office" for the residual period of office of the person removed from office.

The ban#ing compan5 or the person affected b5 the Reserve Ban#@s order ma5 appeal to the %entral -overnme

within thirt5 da5s. The order of the -overnment where an appeal is filed and the order of the Reserve Ban#" whe

no appeal is filed shall be final and not liable to be challenged before an5 civil court.

I:. Te3'#+$+/ 5$2$!2e(:In cases where the wholetime chairman or the managing director dies or he4she resigns or

not capable of discharging his4her functions due to illness" temporar5 arrangements can be made to carr5 out th

duties of the chairman or the managing director for a period not e=ceeding four months. ;owever" this has to b

done with the approval of the Reserve Ban#.

:. P#,e+ #f Re(e+5e B$!% "# $''#!" C)$+3$!: In certain cases" the office of the whole8time chairman or t

managing director of a ban#ing compan5 ma5 fall vacant and ma5 not be filled up b5 the ban# immediatel5. Th

ma5 adversel5 affect the interests of the ban#ing compan5. If the Reserve Ban# is of the opinion that continuation

>1


22/68

such vacanc5 is li#el5 to be against the interests of the ban#ing compan5" it ma5 appoint an eligible person to f

such vacanc5 under 3ection 1)BB of the Ban#ing Regulation Act. If the chairman or the managing director

appointed is not a director of the ban#ing compan5" he4she shall be deemed to be a director of the ban#ing compan

3uch appointment ma5 be for a period not e=ceeding three 5ears. There is also a provision for reappointment aft

the initial period. The chairman or the managing director so appointed ma5 be removed from office onl5 b5 th

Reserve Ban# and shall draw pa5 and allowances from the ban#ing compan5" as determined b5 the Reserve Ban#.

:I. ?$f2$"#! ()$+e(: The whole8time chairman or the managing director of a ban#ing compan5 is e=empted und

3ection I/% of the Ban#ing Regulation Act from the requirement of holding qualification shares. 3imilar e=emptio

is also available to a director of a ban#ing compan5 appointed b5 Reserve Ban# under 3ection 1)A of the Act.

:II. O5e++*! '+#5(#!(:The provisions of 3ection 1)A" 3ection 1)B and 3ection 1)BB of the Ban#ing Regulatio

Act regarding the appointment and removal of a director" managing director or the chairman shall have overridin

effect over all other laws" contracts" etc. An5 person affected b5 an5 action ta#en under these provisions is n

entitled to an5 compensation for an5 loss or for termination of office.

>.8 APPOINTMENT OF ADDITIONAL DIRECTORS

I. The Reserve Ban# has the power to appoint additional directors on the boards of ban#ing companies under 3ectio

?AB of the Ban#ing Regulation Act. /ne or more additional directors ma5 be so appointed when the ban# is of th

opinion that it is necessar5 to do so in the interest of

a ban#ing polic5 b public

c ban#ing compan5 d depositors of the ban#ing compan5.

II. The directors so appointed shall not require an5 qualification shares. The5 hold office during the pleasure of th

Reserve Ban#. 3ubGect to this" appointment ma5 be for a period not e=ceeding three 5ears or further e=tende

periods not e=ceeding three 5ears at a time as specified b5 the Reserve Ban#. The additional directors are protecte

from an5 liabilit5 or obligation for e=ecuting their functions in good faith. The provisions of 3ection ?AB hav

overriding effect over other laws.

>.10 RESTRICTIONS ON EMPLO=MENT

I. The Ban#ing Regulation Act 3ection 1) prohibits emplo5ment of managing agents and imposes restrictions o

emplo5ment of certain t5pe of persons" namel5 L

a a person who is or has been adGudicated insolvent or has suspended pa5ment or has compounded with his4h

creditorsH

b

c a person whose remuneration or part thereof is b5 wa5 of commission or share in the profits of the compan5H

d a person whose remuneration is e=cessive in the opinion of the Reserve Ban#. Before forming an opinio

regarding the remuneration" the Reserve Ban# has to consider the financial condition and histor5 of the ban#in

compan5" its area of operation" resources" volume of business and the trend of its earning capacit5" number of

branches" qualifications" age and e=perience of the person concerned" remuneration of other personnel in th

ban# or persons holding similar positions in other ban#s and the interest of depositors.

The above restrictions are applicable to wor#men as well as management personnel" as held b5 the 3upreme %ou

>>


23/68

in %entral Ban# of India vs Their 7or#men AIR 19?) 3% 1>. ;owever" the restriction on remuneration does n

affect pa5ment of bonus according to a settlement or award or in accordance with a scheme framed b5 the ban#

in accordance with the prevailing practice in ban#ing business. %ommission paid to bro#ers" auctioneer

forwarding agents" etc." who are not regular members of the ban#@s staff" is also not covered b5 these provisions.

II. Persons who are directors of an5 compan5 other than a subsidiar5 of a ban#ing compan5 or compan5 register

under 3ection >! of the %ompanies Act are also prohibited from managing a ban#ing compan5. ;owever" th

prohibition shall not appl5 to a director for a temporar5 period of three months" or a further period not e=ceedin

nine months" if allowed b5 the Reserve Ban#. Apart from this" persons engaged in an5 other" business or vocation

whose term of office as a person managing the compan5 is for a period e=ceeding five 5ears also fall in th

prohibited categor5. ;owever" the period of office can be renewed or e=tended for further periods not e=ceedin

five 5ears at a time.

>.11 CONTROLS OVER MANAGEMENT

I. P#,e+ "# +e3#5e M$!$e3e!" $!* #")e+ 'e+(#!!e:The Reserve Ban# is empowered under 3ection ?AA

the Ban#ing Regulation Act to remove an5 chairman" director" chief e=ecutive officer b5 whatever name called"

other officer or emplo5ee of a ban#ing compan5. or this purpose" the ban# has to be satisfied that it is necessar5

do so. The ban# RBI has the discretionar5 power to remove management and other personnel in the followin

circumstances

a Public interest

b Preventing the affairs of the ban#ing compan5 being conducted in a manner detrimental to the interest

depositors

c 3ecuring proper management of the ban#ing compan5.

The Reserve Ban# has to pass such an order recording the reasons in writing. Before passing the order" the affecte

person has to be given a reasonable opportunit5 of ma#ing a representation against the proposed order. 7here a

urgent action is required and dela5 would be against the interests of the compan5 or its depositors" the Reserve Ban

is empowered to direct b5 order" at the time of giving opportunit5 of ma#ing a representation that the perso

concerned shall not act in his4her official capacit5 or directl5 or indirectl5 ta#e part in the management of the ban

from the date of such order" pending consideration of the representation. The person so removed shall not be entitle

to an5 compensation for loss of office notwithstanding an5thing contained in an5 law" the memorandum" articles

an5 contract to the contrar5 as the provisions of 3ection ?AA have overriding effect.

II. A''e$:An appeal against the order of removal lies with the %entral -overnment. 3uch an appeal has to be file

within thirt5 da5s from the date of communication of the order. The appellate decision of the %entral -overnmen

and subGect thereto the order of the Reserve Ban#" shall be final and not liable to challenge in an5 %ivil %ourt.

III. Effe2" #f ")e #+*e+ #f +e3#5$:/n the Reserve Ban# passing a removal order" the person concerned ceases to ho

office which he4she was holding till then. urther" he4she is prohibited" from directl5 or indirectl5 ta#ing part in th

management of an5 ban#ing compan5 for a period not e=ceeding five 5ears as ma5 be specified in the orde

%ontravention of the order is punishable with a fine of Rs. >!) for each da5 during which the contraventio

continues.

>


24/68

I:. A''#!"3e!" #f $ ("$e 'e+(#!:7hen an5 chairman" director" chief e=ecutive officer" other officer or emplo5

is removed b5 the Reserve Ban# under 3ection ?AA as above" the Reserve Ban# ma5 appoint a suitable person

his place. 3uch person shall hold office at the pleasure of the Reserve Ban#. 3ubGect to this" the appointment ma5 b

for a period not e=ceeding three 5ears and is e=tendable for further periods not e=ceeding three 5ears at a time. 3uc

appointee shall not incur an5 obligation or liabilit5 for action ta#en in good faith in the e=ecution of the duties of h

office.

>.1> CORPORATE GOVERNANCE

I. T)e C#!2e'":%orporate governance is a d5namic concept involving promotion of corporate fairness" transparenc

and accountabilit5 in the interest of shareholders" emplo5ees" customers and other sta#eholders. It is a concept

recent origin. ;owever" there is considerable divergence in the understanding and practice of corporate governanc

across different Gurisdictions. The concept has evolved since the first maGor stud5 b5 the %adbur5 %ommittee

199>. The 2))$. %orporate governance can be seen as @the wa

in which boards oversee the running of a compan5 b5 its managers" and how board members are in turn accountab

to shareholders and the compan5@ and it has implications for compan5 behaviour towards emplo5ees" shareholder

customers" ban#s and other sta#eholders. urther" good corporate governance pla5s a vital role in ensuring th

integrit5 and efficienc5 of financial mar#ets and the lac# of it can pave the wa5 for financial difficulties an

sometimes even fraud.

II. OECD P+!2'e( #f C#+'#+$"e G#5e+!$!2e7 >006:The /


25/68

deplo5 large amounts of public funds in fiduciar5 capacit5 and also leverage such funds through credit creation. Th

position of ban#s is also important for the smooth functioning of the pa5ment s5stem. Accordingl5" leg

prescriptions for ownership and governance of ban#s laid down in the statutes are supplemented b5 regulato

prescriptions. The Basel %ommittee on Ban#ing 3upervision has issued guidance ebruar5 >))? for promoting t

adoption of sound practices of corporate governance b5 ban#ing institutions. This guidance" entitled ))> and simultaneousl5 to the -overnment of India for consideration. ))

which e=amined the issues relating to corporate governance in ban#s in India" including the public sector ban#s an

made recommendations to bring the governance standards in India on par with the best international standard

There were also some relevant observations b5 the advisor5 group on ban#ing supervision under the chairmansh

of 3hri 6.3. :erma which submitted its report in Eanuar5" >)). Deeping all these recommendations in view an

the cross8countr5 e=perience" the Reserve Ban# initiated several measures to strengthen the corporate governance

the Indian ban#ing sector" including the concept of @fit and proper@ criteria for directors of ban#s which included th

process of collecting information" e=ercising due diligence and constitution of a nomination committee of the boato scrutinise the declarations made b5 the ban# directors. The RBI guidelines on ownership and governance in th

private sector ban#s released on ebruar5 >+" >))! Paras ! and ? provide as under3hareholding

a The RBI guidelines on ac#nowledgement for acquisition or transfer of shares issued on ebruar5" >))$ will b

applicable for an5 acquisition of shares of five per cent and above of the paid8up capital of the private sect

ban#.

b In the interest of diversified ownership of ban#s" the obGective will be to ensure that no single entit5 or group

>!
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related entities has shareholding or control" directl5 or indirectl5" in an5 ban# in e=cess of ten per cent of th

paid8up capital of the private sector ban#. An5 higher level of acquisition will be with the prior approval of RB

and in accordance with the guidelines of ebruar5" >))$ for grant of ac#nowledgement for acquisition

shares.

c 7here ownership is that of a corporate entit5" the obGective will be to ensure that no single individual4entit5 h

ownership and control in e=cess of ten per cent of that entit5. 7here the ownership is that of a financial enti

the obGective will be to ensure that it is a well8established regulated entit5" widel5 held" publicl5 listed an

enGo5s good standing in the financial communit5.

d Ban#s including foreign ban#s having a branch presence in India4Is should not acquire an5 fresh sta#e in

ban#@s equit5 shares" if b5 such acquisition" the investing ban#@s4I@s holding e=ceeds five per cent of th

investee ban#@s equit5 capital as indicated in RBI circular dated ? Eul5" >))$.

e As per the e=isting polic5" large industrial houses will be allowed to acquire" b5 wa5 of strategic investmen

shares not e=ceeding ten per cent of the paid8up capital of the ban#" subGect to RBI@s prior approva

urthermore" such a limitation will also be considered" if appropriate" in regard to important shareholders wi

other commercial affiliations.

f In case of a restructuring of the problem4wea# ban#s or in the interest of consolidation in the ban#ing secto

RBI ma5 permit a higher level of shareholding" including b5 a ban#.

>.14 DIRECTORS AND CORPORATE GOVERNANCE

I. The board of directors should ensure that the responsibilities of directors are well defined and the ban#s shou

arrange need based training for the directors in this regard. 7hile the respective entities should perform the rol

envisaged for them" private sector ban#s will be required to ensure that the directors on their boards representin

specific sectors" as provided under the B.R. Act" are indeed representatives of those sectors in a demonstrab

fashion" the5 fulfil the criteria under corporate governance norms provided b5 the -angul5 %ommittee and the5 al

fulfil the criteria applicable for determining @fit and proper@ status of important shareholders i.e." shareholding

five per cent and above as laid down in RBI circular dated >! Eune" >))$.

II. As a matter of desirable practice" not more than one member of a famil5 or a close relative as defined under 3ectio

? of the %ompanies Act" 19!? or an associate partner" emplo5ee" director" etc. should be on the board of a ban#.

III. -uidelines have been provided in respect of @fit and proper@ criteria for directors of ban#s b5 the RBI circular date

>! Eune" >))$ in accordance with the recommendations of the -angul5 %ommittee on corporate governance.

this purpose a declaration and underta#ing is required from the proposed4e=isting directors.

I:. Being a director" the %


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the @it and Proper@ criteria &3ection 9>,.

>.16 LET US SUM UP

A compan5 wanting to commence ban#ing business requires prior licence from the Reserve Ban#. The Reserve Ban# h

the discretion to reGect licence or approve the licence on such conditions as it thin#s fit. Before granting licence" Reserv

Ban# has to be satisfied b5 inspection or otherwise of the suitabilit5 of the compan5 for licence. A licence once given ma

also be cancelled after giving the ban# an opportunit5 to be heard. urther" for opening new branches or shifting branch

outside a cit5" town or village" permission of the Reserve Ban# is required. Ban#ing companies have to have minimu

capital and reserves as specified in the Ban#ing Regulation Act. The shareholders of a ban#ing compan5 are entitled t

dividends onl5 after all the capitalised e=penses are written off. The commission or bro#erage pa5able on selling shares

restricted to two and half per cent of the paid8up value of the shares. The board of directors of a ban# has to be constitute

with persons having special #nowledge or e=perience in accountanc5" ban#ing" economics" law" etc." as stipulated. Th

directors should not have substantial interest in other companies or firms. The ma=imum period of office is limited to eig

5ears continuousl5. The Reserve Ban# is empowered to reconstitute the board" if the board is not properl5 constituted.


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4.0 OBJECTIVES

The obGectives of this unit are to understand the law" in particular the provisions of the Ban#ing Regulation Act" relating to

Issue of directions b5 reserve ban# to ban#s

Regulation of acceptance of deposits b5 ban#s

Regulation of loans and advances

Regulation of interest rates of ban#s on deposits and borrowing

6aintenance of reserve fund

6aintenance of cash reserve b5 scheduled ban#s and other ban#s

6aintenance of liquid assets

6aintenance of assets in india

4.1 INTRODUCTION

The Ban#ing Regulation Act provides for regulation of the business activities of ban#ing companies. Accordingl5" the A

empowers the Reserve Ban# to issue directions for regulating terms and conditions of ma#ing of loans and advances an

other matters including acceptance of deposits. The Ban#ing Regulation Act also imposes certain restrictions on loans an

advances to the directors of ban#ing companies" and companies and firms in which the5 are interested. The Act contain

provisions for creation of a reserve fund and transfer of a percentage of profits to that fund. There are also provisions f

maintenance of cash reserve" liquid assets and assets in India. In this unit" we loo# at the relevant provisions of law in th

regard.

4.> POWER TO ISSUE DIRECTIONS

I. T)e B$!%! Re$"#!:Act authorises the Reserve Ban# to issue directions to ban#s under 3ections >1 an

!Aof the Act. 7hile 3ection >1 gives the power to regulate advances b5 ban#ing companies" 3ection !A giv

wide powers generall5 to regulate ban#ing companies. The Reserve Ban# has been issuing directions from time time under 3ection >1 read with 3ection !A regulating rates of interest and other terms and conditions

acceptance of deposits and ma#ing of loans and advances. Regulation of deposits and loans and advances a

discussed below 3ee" Paras .$ and .!" respectivel5.

II. N$"+e #f D+e2"#!(: The directions issued b5 the Reserve Ban# in e=ercise of powers under 3ections >1 and !

of the BR Act" being statutor5 directions" are binding on the ban#s. The circulars of the Reserve Ban# givin

instructions to ban#s where it has statutor5 powers to give such instructions are also binding on the ban#s" even

the5 do not specificall5 refer to an5 statutor5 provisions. ;owever" as held b5 the 3upreme %ourt in 3tate Ban#

India vs. %IT AIR 19+? 3% (!(" non8statutor5 circulars of the Reserve Ban# cannot affect legal rights. ThReserve Ban#@s powers to issue directions are over the ban#s. ;ence" the directions are addressed to ban#s onl5 an

not to customers or the public. The effect of violation of Reserve Ban#@s directions4 instructions which are bindin

on ban#s" has been considered b5 the 3upreme %ourt in B/I inance td. vs. The %ustodian AIR 199( 3% 19!>

the conte=t of some ban#s entering into certain repo transactions against the circulars of the Reserve Ban

prohibiting such transactions. The court found that the action of the ban#s violated the Reserve Ban#@s instructio

and held that the violations would not invalidate the contracts with third parties but would render the ban#s liable

>+


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the form and manner prescribed and should cover all deposits not operated for ten 5ears. In the case of fi=

deposits the period of ten 5ears starts from the e=pir5 of the period of the deposit.

4.6 NOMINATION

I. Re'$/3e!" #f De'#("( 3ection $!NA of the Ban#ing Regulation Act provides that a depositor or depositors of

ban#ing compan5 including co8operative ban#s ma5 nominate one person in the prescribed manner as nominee

whom the deposit ma5 be returned in the event of death of the sole depositor or depositors. 'nless the nomination

varied or cancelled" the nominee is entitled to all the rights of the depositor4s in the event of death of the depositor4

In the case of minor nominees" there is also a provision to appoint a person to receive the deposit on behalf of th

minor. Pa5ment b5 a ban# in accordance with these provisions gives a valid discharge to the ban#" but this does n

affect the right or claim a person ma5 have against the nominee in respect of the amount received b5 him. Rule >

the Ban#ing %ompanies 0omination Rules" 19+! provides for the procedure and forms for ma#ing nomination

respect of deposits with commercial ban#s. In the case of %o8operative ban#s" similar provisions are incorporated

the %o8operative Ban#s 0omination Rules" 19+!.

II. A+"2e( ! S$fe C("#*/ $!* S$fe"/ L#2%e+(: There are also provisions in the Ban#ing Regulation Act f

nomination in respect of articles #ept in safe custod5 with ban#s and safet5 loc#ers. 3ections $!N% and $!N

provide that an5 person who leaves an5 article in safe custod5 and in safet5 loc#ers respectivel5 with a ban#in

compan5" ma5 nominate one person as nominee to receive the article in the event of death of that person. Th

nomination has to be in the prescribed manner and on return of articles #ept in safe custod5 or removal of conten

of loc#er b5 nominees as provided" the ban# gets a valid discharge. Rules and $ of the Ban#ing %ompani

0omination Rules" 19+!" and also the Rules and $ of the %o8operative Ban#s 0omination Rules" 19+! de

with the form and procedure applicable to articles in safe custod5 and safet5 loc#ers respectivel5 in the case

ban#ing companies and co8operative ban#s.

4.9 LOANS AND ADVANCES

I. The definition of @ban#ing@ in 3ection !b of the Ban#ing Regulation Act indicates that acceptance of deposits ma

be for lending or investment. Thus" lending or ma#ing of loans and advances is a core business of a ban#in

compan5. ending ma5 be for short term or long term" on secured or unsecured basis and for different purposes.

II. Regulation of oans and Advances

a The Reserve Ban# is empowered under 3ection >1 of the Ban#ing Regulation Act to issue directions to contr

advances b5 ban#ing companies. 3uch directions ma5 be issued to ban#ing companies generall5 or to an5 particul

ban#ing compan5. The Reserve Ban# ma5 determine the polic5 in relation to advances and issue directions when

is satisfied that it is necessar5 to give directions

i In public interest ii In the interests of depositors

iii In the interests of ban#ing polic5.

b The directions given b5 the Reserve Ban# are binding on ban#ing companies" and ma5 be on one or more of th

following matters

i. Purpose for which advances ma5 or ma5 not be made.

ii. 6argins" to be maintained in respect of secured advances.

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iii. 6a=imum amount of advances or other financial accommodation which ma5 be made to an5 compan5" firm

association of persons or individual. The polic5 on these matters ma5 be specified having regard to the paid8u

capital" reserves and deposits of the ban#ing compan5 and other relevant considerations.

iv. 6a=imum amount up to which guarantees ma5 be given b5 a ban#ing compan5 on behalf of an5 compan5" firm

association of persons or individual. In this case" also the paid8up capital" reserves" deposits and other releva

considerations have to be ta#en into account for determining the ma=imum amount.

v. Rate of interest and other terms and conditions on which advances and other financial accommodation ma5 b

made or guarantees ma5 be given.

The Reserve Ban# issues directions from time to time regulating the lending operations of ban#ing companies

e=ercise of these powers vested under 3ection >1. Apart from this" the general powers to give directions und

3ection !A are also available for regulation of loans and advances.

III. 3elective %redit %ontrol

A P+'#(e:Ban#s have been traditionall5 financing trade and commerce and against items the5 deal in eve

before the countr5 started industrialiMing. To ensure that prices of essential commodities li#e food grain

pulses" edible oils" sugar" Gagger5 and cotton and te=tiles are not increased b5 certain sections of the busine

communit5 with a motive of profit ma=imisation b5 hoarding with the help of ban# finance" these restriction

have been put in place. These cover the quantum of credit that can be e=tended and also the rate at which it ca

be e=tended.

7ith self8sufficienc5 achieved b5 our countr5 over the 5ears in almost all of the above" RBI had ta#en them o

of the purview of selective credit control and currentl5 restrictions are there onl5 in case of lev5 sugar.

B Me")#*( $!* "##(:3elective credit control see#s to influence the demand for credit b5

a 6a#ing borrowing more costl5 for certain purposes which are considered relativel5 inessenJtial" or

b B5 imposing stringent conditions on lending for such purposes" or iii b5 giving concessions for certa

desired t5pes of activities.

The tools emplo5ed for e=ercising selective credit control are

i. 6inimum margins for lending against selected commoditiesH

ii. %eilings on the levels of creditH and

iii. %harging of minimum rate of interest on advances against specified commodities.

The quantum and cost of credit are regulated b5 operating these tools of control.

% P+2e 2#!"+#:In India" selective credit control has been generall5 used for preventing speculative hoarding

essential commodities and basic raw materials using ban# credit. This is with a view to chec# the undue rise o

prices of such sensitive commodities.

2 Re("+2"#!( #! #$!( $!* $*5$!2e(:3ection >) of the Ban#ing Regulation Act imposes certain restrictions o

loans and advances. Accordingl5" no ban#ing compan5 shall grant loans or advances on the securit5 of its ow

shares. urther" a ban#ing compan5" is prohibited from entering into an5 commitment for granting an5 loans

advances to or on behalf of an5 of its directors. The prohibition also applies to loans and advances to

irms in which an5 director is interested as a partner" manager" emplo5ee or guarantor" and An5 compan

other than a compan5 registered under section >! of the companies act in which a director of the ban#in

1


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compan5 holds substantial interest as defined in section !ne of the act or of which he is director" manage

managing agent" emplo5ee or guarantor.

If the director of a ban#ing compan5 is a partner or guarantor of an5 individual" loans and advances to suc

individual are also barred. @2irector@ includes a member of an5 board for managing or advising the ban

regarding management of all or an5 of its affairs. It is open to the Reserve Ban# to specif5 an5 transactio

as not being a loan or advance for this purpose b5 a general or special order. In so doing the ban# has

consider the nature of the transaction" period" manner and circumstances in which the amount is li#el5 to b

realised" the interest of depositors and other relevant considerations. If there is an5 doubt or dispute as

whether a transaction is a loan or advance" the decision of the Reserve Ban# in the matter shall be final.


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ban#s to decide the rates themselves. urther" the rate of interest ma5 var5 on the basis of the period of the loan. Th

Reserve Ban# tightens the regulations or gives rela=ations thereb5 permitting ban#s to decide the rates on their ow

depending on the position of mone5 suppl5 in the public interest or in the interest of depositors or of ban#ing polic

%urrentl5 the directions of RBI regarding interest rates of advances cover onl5 finance to e=porters and small loan

with limits up to Rs > lac and 2RI loans.

III. U(+#( #$!( A2"7 181))) has amended the Reserve Ban# of India Act" inserting the %lause pp in 3ection !+ > empowering the Reserve Ban

to frame regulations for pa5ment s5stems of ban#s and financial institutions. inancial institution for this purpose will ha

the same meaning as provided in the %lause c of 3ection $! of the Reserve Ban# of India Act. Accordingl5" the %entr

Board of the Reserve Ban# has framed the Reserve Ban# of India Board for Regulation and 3upervision of Pa5ment an


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3ettlement 35stems Regulations" >))!. urther" RBI is in the process of finalising the guidelines under the Pa5ment an

3ettlement 35stems Act" >))(.

i. Board for regulation and supervision of Pa5ment and 3ettlement 35stems The Reserve Ban#" in terms of the RBI Boa

for Regulation and 3upervision of Pa5ment and 3ettlement 35stems Regulations" >))!" has constituted a Board f

Regulation and 3upervision of Pa5ment and 3ettlement 35stems BP33 as a committee of its %entral board. The Board h

the -overnor of the Ban# as its chairman and its functions include prescribing policies relating to the regulation an

supervision of all t5pes of pa5ment and settlement s5stems" setting standards for e=isting and future s5stems" authorising th

pa5ment and settlement s5stems" determining criteria for membership to these s5stems including continuation" terminatio

and reGection of membership.

4.< INTERNET BANKING GUIDELINES

The Reserve Ban# has issued guidelines in respect of internet ban#ing. These guidelines cover

i technolog5 and securit5 issuesH ii legal issuesH

iii regulator5 and supervisor5 issues.

These guidelines appl5" in addition to Internet ban#ing" to other forms of electronic ban#ing to the e=tent relevant. A

ban#s offering internet ban#ing have to ma#e a review of their s5stems in the light of these guidelines and report

the Reserve Ban# the t5pes of services offered" e=tent of their compliance with the recommendations" deviations"

an5 and their proposal indicating a timeframe for compliance.

4.8 REGULATION OF MONE= MARKET INSTRUMENTS

The Reserve Ban# of India Amendment Act" >))? 3ection $!7 empowers the Ban#" in public interest or to regulate th

financial s5stem of the countr5 to its advantage" to determine the polic5 relating to interest rates or interest rate products an

give directions in that behalf to all agencies or an5 of them" dealing in securities" mone5 mar#et instruments" foreig

e=change" derivatives" or other instruments of li#e nature as the Ban# ma5 specif5 from time to time. urther" the Ban# ma

for the purpose of enabling it to regulate these agencies call for an5 information" statement or other particulars from them"

cause an inspection of such agencies to be made. ;owever" the directions issued b5 the Ban# in this behalf shall not relate

the procedure for e=ecution or settlement of the trades in respect of the transactions on the recognised 3toc#


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RRBs and the scheduled primar5 co8operative ban#s without resorting to courts. It was modified b5 the Ban#in

/mbudsman 3cheme" >))> and later b5 the Ban#ing /mbudsman 3cheme" >))? to enlarge the e=tent and scope of th

authorit5 and functions of ban#ing ombudsman for @redressal of grievances against deficienc5 in ban#ing service

concerning loans and advances and other specified matters@. All commercial ban#s" regional rural ban#s and schedule

primar5 co8operative ban#s are required to compl5 with the modified scheme.

1. Oe2" #f ")e (2)e3e The obGect of the scheme is to enable resolution of complaints relating to specified servic

rendered b5 the ban#s and to facilitate the satisfaction or settlement of such complaints.

>. G+#!*( #f 2#3'$!": The grounds on which complaints ma5 be made to the ban#ing ombudsman are

.

i. 2eficienc5 in ban#ing or other services in respect of

a non8pa5ment or inordinate dela5 in the pa5ment or collection of cheques" drafts" bills" etc.H b non8acceptance" witho

sufficient cause" of small denomination notes tendered for an5 purpose" and for charging of commission in respect thereo

c non8acceptance" without sufficient cause" of coins tendered and for charging of commission in respect thereofH d non

pa5ment or dela5 in pa5ment of inward remittancesH e failure to issue or dela5 in issue of drafts" pa5 orders or ban#er

chequesH f non8adherence to prescribed wor#ing hoursH g failure to honour guarantee or letter of credit commitmentsH

failure to provide or dela5 in providing a ban#ing facilit5 other than loans and advances promised in writing b5 a ban#

its direct selling agentsH i dela5s" non8credit of proceeds to parties@ accounts" non8pa5ment of deposit or non8observance

the Reserve Ban# directives" if an5" applicable to rate of interest on deposits in an5 savings" current or other accou

maintained with a ban#H G dela5s in receipt of e=port proceeds" handling of e=port bills" collection of bills" etc." fo

e=porters provided the said complaints pertain to the ban#@s operations in IndiaH # complaints from 0on Resident India

having accounts in India in relation to their remittances from abroad" deposits and other ban#8related mattersH 1 refusal

open deposit accounts without an5 valid reasonH m lev5ing of charges without adequate prior notice to the customerH

non8adherence b5 the ban# or its subsidiaries to the instructions of Reserve Ban# on AT64 2ebit card operations or cred

card operationsH o non8disbursement or dela5 in disbursement of pension to the e=tent the grievance can be attributed

the action on the part of the ban# concerned" but not with regard to its emplo5eesH p refusal to accept or dela5 in acceptin

pa5ment towards ta=es" as required b5 Reserve Ban#4-overnmentH q refusal to issue or dela5 in issuing" or failure

service or dela5 in servicing or redemption of -overnment securitiesH r forced closure of deposit accounts without du

notice or without sufficient reasonH s refusal to close or dela5 in closing the accountsH t non8adherence to the fa

practices code as adopted b5 the ban#H u an5 other matter relating to the violation of the directives issued b5 the Reserv

Ban# in relation to ban#ing services.

ii. 2eficienc5 in ban#ing service in respect of loans and advances pertaining to

a non8observance of Reserve Ban# 2irectives on interest ratesH

b dela5s in sanction" disbursement or non8observance of prescribed time schedule for disposal of loa

applications but not declining creditH

c non8acceptance of application for loans without furnishing valid reasons to the applicantH

d non8observance of an5 oth

legal & regulatory aspect of banking (module - c

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