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Reserve Bank of India Act, 1934 – Part-II – Section 17 to 19

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the second article in the series. 

Section 17 – Business which the Bank may transact

RBI shall be authorized to carry on and transact the several kinds of business hereinafter specified, namely –

17(1) – Accept deposit without interest from the Central / State Government, local authorities, banks and any other persons.

17(1A) – Accept deposit, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved by the Central Board, for the purposes of liquidity management.

 

 Bills of Exchange (B/E) & Promissory Note (PN) Bearing 2 or more good signatures, one of which shall be of B/E & PN arising out of Maturing within
17(2)(a) Purchase, sale and rediscount of B/E & PN drawn on and payable in India Scheduled bank or State co-operative bank or any financial institution Bona-fide commercial or trade transaction B/E & PN arising out of exports of goods – 180 days
Others – 90 days
17(2)(b) Purchase, sale and rediscount of B/E & PN drawn and payable in India Scheduled bank or State co-operative bank or any financial institution Financing agricultural operations or marketing of crops 15 months
17(2)(bb) Purchase, sale and rediscount of B/E & PN drawn and payable in India State co-operative bank or State financial corporation or any financial institution Financing production / marketing activities of cottage and small-scale industries 12 months
Payment of principal and interest of such B/E or PN shall be fully guaranteed by State Government.
17(2)(c) Purchase, sale and rediscount of B/E & PN drawn and payable in India Scheduled bank Holding / trading in securities of Central / State Government 90 days

17(3)(a) – Purchase and sale of foreign exchange to scheduled banks.

17(3)(b) – Purchase, sale and rediscount of bills of exchange (including treasury bills) –

  • Drawn in or on any place in any country outside India which is a member of International Monetary Fund (IMF).
  • Maturing – in case of bills of exchange arising out of any bona fide transaction relating to exports, within 180 days; others within 90 days.
  • Such purchase, sale or rediscount shall be made in India only from scheduled bank or State co-operative bank.

 

 Making of loans and advances to Against the security of Repayable within
17(3A) & 17(3B) Scheduled bank or State co-operative bank Promissory note of such bank. On demand / within 180 days
17(4) Local authorities, scheduled banks, State co-operative bank, State Financial Corporation Stocks, funds, securities (other than immovable property) in which a trustee is authorized to invest trust money.
Gold / silver or documents of title to same.
Bills of exchange and promissory note as are eligible for purchase / rediscount with RBI or as are fully guaranteed as to the repayment of the principal and payment of interest by a State Government.
Promissory note of scheduled bank or State co-operative bank.		 On demand / within 90 days.
Loans against bills of exchange or promissory note arising out of exports shall be repayable on demand / within 180 days.
17(4A) State Financial Corporation Securities of Central / State Government.
Bonds and debentures issued by that corporation and guaranteed by State Government and maturing within 18 months from the date of such loan.		 Within 18 months
17(4AA) Making of annual contributions to National Rural Credit (Long Term Operations Fund) and National Rural Credit (Stabilisation) Fund.
17(4B) Industrial Finance Corporation of India Securities of Central / State Government. On demand / within 90 days
Securities of Central Government or bonds / debentures issued by corporation and guaranteed by Central Government and maturing within 18 months from loan. Within 18 months
17(4BB) Any financial institution notified by the Central Government Securities of Central / State Government. On demand / within 90 days
Securities of Central Government or bonds / debentures issued by that financial institution and guaranteed by Central / State Government and maturing within 18 months from loan. Within 18 months
17(4BBB) Unit Trust Stocks, funds, securities (other than immovable property) in which a trustee is authorized to invest trust money. On demand / within 90 days
Bonds of Unit Trust approved and guaranteed by Central Government. On demand / within 18 months
For purpose other than 1st scheme of Unit Trust and against the property of Unit Trust specified by RBI.

 
17(4C) Warehousing Corporation (WC) Securities of Central / State Government. On demand / within 90 days
Securities of Central / State Government or bonds and debentures issued by corporation and guaranteed by Central / State Government and maturing within 18 months.
Maximum loan to Central WC – Rs.3 Crore, State WC – Rs.50 lakhs.		 Within 18 months
17(4D) Making of loans and advances to Deposit Insurance Corporation
17(4DD) Making of loans and advances to National Housing Bank
17(4E) National Bank Stocks, funds, securities (other than immovable property) in which a trustee is authorized to invest trust money or on terms and conditions specified by RBI. On demand / within 18 months
17(4F) Contributing to initial capital of Unit Trust.
17(4G) Making of loans and advances to and purchase of bonds and debentures of EXIM Bank or Reconstruction Bank or SIDBI or National Bank for Financing Infrastructure and Development or other development financial institution out of National Industrial Credit (Long-term Operations) Fund.
17(4GG) Making of loans and advances to and purchasing of bonds and debentures of National Housing Bank out of National Housing Credit (Long-term Operations) Fund.
17(4H), 17(4J), 17(4K),
17(4L),		 Small Industries Bank, Exim Bank, Reconstruction Bank, National Bank for Financing Infrastructure and Development or other development financial institution Stocks, funds, securities (other than immovable property) in which a trustee is authorized to invest trust money. On demand / within 90 days
Bills of exchange or promissory notes, arising out of bona-fide commercial or trade transactions and maturing within 5 years of loan.

 
17(4-I) Scheduled bank, Exim Bank or Reconstruction Bank or Small Industries Bank, Industrial Finance Corporation, National Bank for Financing Infrastructure and Development or other development financial institution and any other financial institution Against security or on terms and conditions approved by the Central Board. On demand / otherwise
17(5) Central and State Government

 

 Within 3 months

17(6) – Issue demand drafts, telegraphic transfers and other kinds of remittances.

17(6A) – Deal in Derivatives.

17(8) – Purchase and sale of securities of Central / State Government and local authorities.

17(8A) – Purchase and sale of shares in National Bank, Deposit Insurance Corporation, State Bank or any other bank / financial institution.

17(8AA) – Promoting / establishing financial institution, whether as RBI’s subsidiary or otherwise.

17(8B) – Keep deposit with State Bank.

17(9) – Custody of monies, security and other articles of value, and collection of  proceeds of principal, interest or dividends of securities.

17(10) – Sale of property which came into possession of RBI in satisfaction of its claim.

17(11) – Acting as agent for governments / corporations for different activities.

17(11A) – Acting as agent for Central Government.

17(12) – Purchase and sale of gold / silver and foreign exchange and opening gold account with –

  • Principal currency authority of foreign country or 
  • Bank for International Settlements or 
  • Any international or regional bank
  • Financial institution formed by such principal currency authority / government of foreign country

17(12A) – Purchase and sale of securities issued by government / institution / company outside India –

  • Payable in foreign currency
  • Security maturing within 10 years (if issued by foreign company to be guaranteed by foreign government)

17(12AA) – Lending / borrowing of securities of Central / State Government and local authority.

17(12AB) – Dealing in Repo and Reverse Repo.

17(12B) – Making of loans and advances in foreign currencies to banks and financial institutions against promissory note of such bank or financial institution.

17(13) – Open account with foreign office of bank, including bank incorporated in India. Act as agent of foreign bank or principal currency authority of foreign country or any international or regional bank or financial institution formed by such authorities or foreign governments. Investing RBI funds in shares and securities of international or regional bank or financial institution or other foreign institution approved by the Central Board.

17(13A) – Participating in arrangement for clearing and settlement of international transactions.

17(14) – Borrowing for up to 1 month for business of RBI against security. Borrowing only from scheduled bank in India or principal currency authority of foreign currency. Total borrowing from persons in India shall not exceed capital of RBI.

17(15) – Make and issue bank notes.

17(15A) – Exercise powers and perform duties entrusted to RBI.

17(15B) – Providing training in banking.

17(16) – Doing all such matters as required under the Act.

Section 18 – Power of direct discount

RBI may, notwithstanding any limitation contained in section 17 –

  • 18(1) – Purchase, sale or discount bills of exchange or promissory note though not eligible for purchase / discount by RBI.
  • 18(3) – Make loans / advances to State co-operative bank, co-operative society, any other person repayable on demand / within 90 days.

Section 18A – Validity of loan or advance not to be questioned

  • 18A(a) – Validity of loan and advances granted by RBI not to be questioned for lapse on borrower side.
  • 18A(b) – Loans given under Section 17, when recovered, funds to be used for repaying loans taken from RBI.

Section 19 – Business which the Bank may not transact

RBI may not –

  • 19(1) – Trade or acquire interest in commercial undertaking except acquired in satisfaction of its claim. Such interest to be disposed-off at the earliest.
  • 19(2) – Purchase shares of bank / company or give loans against security of such shares.
  • 19(3) – Loan against mortgage of immovable property. Become owner of immovable property except for its own business premises or residence.
  • 19(4) – Make loans or advances.
  • 19(5) – Draw / accept bills payable otherwise than on demand.
  • 19(6) – Allow interest on deposits / current account.


References

Reserve Bank of India. (2022, August 29). 'The Reserve Bank of India Act, 1934'. Retrieved from https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act


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