Banking Regulations Act

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BANKING REGULATIONS ACT 1949

The Banking Regulation Act was passed as the Banking Companies Act 1949 and came into force wef 16.3.49. Subsequently it was changed to Banking Regulations Act 1949 wef 01.03.66. Summary of some important sections is provided hereunder. The section no. is given at the end of each item. For details, kindly refer the bare Act.

  • Banking means accepting for the purpose of lending or investment of deposits of money from public repayable on demand or otherwise and withdrawable by cheque, drafts order or otherwise (5 (i) (b)).
  • Banking company means any company which transacts the business of banking (5(i)(c)
  • Transact banking business in India (5 (i) (e).
  • Demand liabilities are the liabilities which must be met on demand and time liabilities means liabilities which are not demand liabilities (5(i)(f)
  • Secured loan or advances means a loan or advance made on the security of asset the market value of which is not at any time less than the amount of such loan or advances and unsecured loan or advances means a loan or advance not secured (5(i)(h).
  • Defines business a banking company may be engaged in like borrowing, lockers, letter of credit, traveller cheques, mortgages etc (6(1).
  • States that no company shall engage in any form of business other than those referred in Section 6(1) (6(2).
  • For banking companies carrying on banking business in India to use at least one word bank, banking, banking company in its name (7).
  • Restrictions on business of certain kinds such as trading of goods etc. (8)
  • Prohibits banks from holding any immovable property howsoever acquired except as acquired for its own use for a period exceeding 7 years from acquisition of the property. RBI may extend this period by five years (9)
  • Prohibitions on employments like Chairman, Directors etc (10)
  • Paid up capital, reserves and rules relating to these (11 & 12)
  • Banks not to pay any commission, brokerage, discount etc. more than 2.5% of paid up value of one share (13)
  • Prohibits a banking company from creating a charge upon any unpaid capital of the company. (14) Section 14(A) prohibits a banking company from creating a floating charge on the undertaking or any property of the company without the RBI permission.
  • Prohibits payment of dividend by any bank until all of its capitalised expenses have been completely written off (15)
  • To create reserve fund and 20% of the profits should be transferred to this fund before any dividend is declared (17 (1))
  • Cash reserve - Non-scheduled banks to maintain 3% of the demand and time liabilities by way of cash reserves with itself or by way of balance in a current account with RBI (18)
  • Permits banks to form subsidiary company for certain purposes (19)
  • No banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owners of any amount exceeding 30% of its own paid up share capital + reserves or 30% of the paid up share capital of that company whichever is less. (19(2).
  • Restrictions on banks to grant loan to person interested in management of the bank (20)
  • Power to Reserve Bank to issue directive to banks to determine policy for advances (21)
  • Every bank to maintain a percentage of its demand and time liabilities by way of cash, gold, unencumbered securities 25%-40% as on last Friday of 2nd preceding fortnight (24).
  • Return of unclaimed deposits (10 years and above) (26)
  • Every bank has to publish its balance sheet as on March 31st (29).
  • Balance sheet is to be got audited from qualified auditors (30 (i))
  • Publish balance sheet and auditors report within 3 months from the end of period to which they refer. RBI may extend the period by further three month (31)
  • Prevents banks from producing any confidential information to any authority under Indl Disputes Act. (34A)
  • RBI authorised to undertake inspection of banks (35).
  • Amendment carried in the Act during 1983 empowers Central Govt to frame rules specifying the period for which a bank shall preserve its books (45-y), nomination facilities (45ZA to ZF) and return a paid instrument to a customer by keeping a true copy (45Z).
  • Certain returns are also required to be sent to RBI by banks such as monthly return of liquid assets and liabilities (24-3), quarterly return of assets and liabilities in India (25), return of unclaimed deposits i.e. 10 years and above (26) and monthly return of assets and liabilities (27-1).


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