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Banking Regulation Act, 1949 – Part-I – Section 3 to 12B

The Banking Regulation Act, 1949 (BR Act, 1949) governs the working of banks in India. In a series of articles, we will briefly go through some of the important provisions of the BR Act, 1949. This is the first article in the series.

Part 1 – Preliminary

Section 3 – Act not to apply to certain cooperative societies

The Act shall not apply to – 

  • A primary agricultural credit society, or
  • A co-operative society whose primary object and principal business is providing of long-term finance for agricultural development,

if such society does not use as part of its name, or in connection with its business, the words “bank”, “banker” or “banking” and does not act as drawee of cheques.

Part 2 - Business of Banking Companies

Section 6 – Forms of business in which banking companies may engage 

  • In addition to the business of banking, a banking company may engage in any one or more forms of business specified in this section.
  • Banking company shall not engage in any form of business other than those referred to in this section. 

Section 7 – Use of words "bank", "banker", "banking" or "banking company" 

  • Only a banking company shall use as part of its name or in connection with its business any of the words "bank", "banker" or "banking" and a company shall not carry on the business of banking in India unless it uses as part of its name at least one of such words.
  • A firm, individual or group of individuals shall not, for the purpose of carrying on any business, use as part of its or his name any of the words "bank", "banking" or "banking company".
  • This section shall not apply to –
    • A subsidiary of a banking company formed for the purposes mentioned in section 19(1), whose name indicates that it is a subsidiary of that banking company.
    • Any association of banks formed for the protection of their mutual interests and registered under section 25 of the Companies Act, 1956.

Section 8 – Prohibition of trading 

A banking company shall not (directly / indirectly) –

  • Deal in buying / selling / bartering of goods, except for realisation of security given to / held by it.
  • Engage in any trade / buy / sell / barter goods for others otherwise than in connection with bills of exchange received for collection / negotiation or with such of its business referred to in section 6(1)(i).

Section 9 – Disposal of non-banking assets 

  • A banking company shall not hold any immovable property howsoever acquired, except such as is required for its own use, for more than 7 years from the acquisition.
  • Within these 7 years, the banking company may deal / trade in such property for facilitating the disposal.
  • Reserve Bank of India (RBI) may extend the period of 7 years by up to 5 years.

Section 10A – Board of Directors to include persons with professional or other experience 

At least 51% of the total number of members of the Board of directors of a banking company shall consist of persons, who shall have special knowledge / practical experience in accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law, small-scale industry, etc.

Section 10BB – Power of Reserve Bank to appoint Chairman of the Board of Directors appointed on a whole-time basis or a Managing Director of a banking company 

Where the office of the chairman of the board of directors appointed on a whole-time basis or a managing director of a banking company is vacant, RBI may appoint a person to be the chairman of the board of directors appointed on a whole-time basis or a managing director of the banking company.

Section 11 – Requirement as to minimum paid-up capital and reserves 

Section 12 – Regulation of paid-up capital, subscribed capital and authorised capital and voting rights of shareholders

Section 12B – Regulation of acquisition of shares or voting rights 

Without prior approval of RBI, a person shall not hold 5% or more of the paid-up share capital / voting rights of a banking company.


References

Reserve Bank of India. (2021, April 19). 'The Banking Regulation Act, 1949'. Retrieved from https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=Banking%20Regulation%20Act


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