Banking Legislation In India BANKING REGULATION ACT 1949 The Banking Regulation Act 1949 as amended up to date contains the following five parts :- Part I : Preliminary (Sec 1 to 5A) Part II : Business of Banking Company (Sec 6 to 36A) Part II A : Control and Management (Sec 6 to 36 A) Part II B : Prohibition of Certain Activities in Relation to banking Companies (Sec 36 AD) Part II C : Acquisition of the Undertakings of Banking Companies in Certain cases (Sec 36 AE to 36 AJ) Part III : Suspension of Business and winding up of Banking Companies (Sec 36 to 45) Part III A : Special Provision of speedy disposal of winding up proceedings (sec 45 A to 45 X) Part III B : Provisions relating to certain Operations of Banking Companies (sec 45 Y to 45 ZF) Part IV : Miscellaneous (Sec 46 to 55) Part V : Main Provisions as applicable to Cooperative Banks (Sec 56)

We give below some of the important provisions of the act: 1.Definition of a Banking Company : The act defines the term ‘Banking’ as “accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”. It also defines a banking company as “any company which transacts the business of banking in India”. As such it performs the functions of accepting deposits and lending or investing the same. 2.Minimum Capital Requirements : The act prescribes minimum capital requirements for banking companies. A banking company incorporated outside India (i.e. Foreign bank) is required to have its paid up capital and reserves of the aggregate value of not less than Rs. 15 Lakhs, but if it has a place of places of business in the city of Bombay, Calcutta, or both, Rs. 20 Lakhs. It is also required to deposit with RBI either in cash or in the form of unencumbered approved securities or both. On the other hand, a banking company incorporated within India is required to have paid up capital and reserves of an aggregate values of not less than Rs 5 lakhs. If it has business more than one state and if any such place is situated in the city of Bombay or Calcutta or both, Rs. 10 Lakhs.

3. Reserve Fund : Every banking company incorporated within India is required to create a Reserve Fund and to transfer to such Fund, before any dividend is declared, 20 percent of its profits. 4. Cash Reserve :Every scheduled bank is required to keep 3 percent of the total of its time and demand liabilities with the RBI as cash reserves which is interest free. 5. Maintenance of Liquid Assets: Maintenance of adequate liquid assets is essential for sound banking. The act requires every bank to main in cash, gold or unecumbered approved securities not less than 25 percent of total demand and time liabilities in India.

6. Maintenance Assets in India :Every banking company is required to maintain its assets equivalent to not les than 75% of its demand and time liabilities in India at the close of business on the last Friday of every quarter. 7. Management of Banking Company: It lays down that no banking company can employ or to be managed by a managing agent, or any person who has been declared as insolvent, or has been convicted by a criminal court or is a director of any other company, or engaged in any other business or whose remuneration is excessive in the opinion of RBI.

8. Prohibitions and Restrictions on Banking Company i.The act prohibits a banking company from engaging directly or indirectly in trading activities and undertaking trade risks. ii.It prohibits banking company from holding any immovable property, howsoever acquired, except for its own use. iii.A banking Company cannot form any subsidiary company. iv.It cannot hold shares in any company exceeding 30% of the paid up share capital v.It cannot grant any loan on the security of its own shares. vi.A banking company cannot create a charge upon its unpaid capital. vii.A banking company is prohibited from the payment of dividend untill all its capitalised expenses have been completely written off.