Skip to main content

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


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

FX Global Code

Reserve Bank of India (RBI) has signed its renewed Statement of Commitment (SoC) to the FX Global Code.  What is FX Global Code? FX Global Code is a set of global principles of good practice in the foreign exchange market. The Code contains 55 principles that provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. The principles cover ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement. The establishment of the Code was facilitated by the Foreign Exchange Working Group (FXWG), which operated under the auspices of the BIS Markets Committee.  The Code was developed by a partnership between central banks and market participants from around the globe and was first published in 2017. The Code promotes a robust, fair, liquid, open, and appropriately transparent market in which a diverse set of market participants, supported by resilient infras...
Post a Comment
Read more

Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver. To whom are the directions applicable? The directions are applicable to the following regulated entities (REs) – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks). Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs). Which loans are covered under the directions? The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security. What is eligible collateral? Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver. A lender shall not grant any ad...
Post a Comment
Read more

Amendments in / additions to forex guidelines

Reserve Bank of India (RBI) has amended various forex guidelines. This article lists out some of the such recent amendments. What are the updates in the existing guidelines? Previous guidelines Revised guidelines Persons resident outside India that maintain a rupee account in terms of regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016 may purchase or sell dated Government Securities / treasury bills. The amount of consideration paid for the purchases shall be out of the funds held in the said rupee account. Persons resident outside India that maintain a rupee account in terms of regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016 may purchase or sell dated Government Securities / treasury bills and non-convertible debentures / bonds and commercial papers issued by an Indian company. The amount of consideration paid for the purchases shall be out of the funds held in the said rupee account. The balance...
Post a Comment
Read more

Investments in Non-SLR instruments by State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs)

Reserve Bank of India (RBI) has issued directions on investments in non-SLR instruments by State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). What is the prudential limit for non-SLR investment by StCBs and CCBs? Total Non-SLR investments shall not exceed 10% of the total deposits of a bank as on March 31 of the preceding financial year. Which instruments are permitted for non-SLR investments by StCBs and CCBs? StCBs / CCBs may invest in the following instruments – "A" or equivalent and higher rated Commercial Papers (CPs), debentures and bonds. Units of Debt Mutual Funds and Money Market Mutual Funds. Shares of Market Infrastructure Companies (MICs), e.g. Clearing Corporation of India Ltd. (CCIL), National Payments Corporation of India (NPCI), Society for World-wide Inter-bank Financial Telecommunication (SWIFT). Share capital of Shared Service Entity (SSE) set up by National Bank for Agriculture and Rural Development (NABARD) for StCBs and CCBs. Which a...
Post a Comment
Read more

Directions on Regulation of Payment Aggregators (PAs)

Reserve Bank of India (RBI) has issued directions on regulation of Payment Aggregators (PAs). Who is Payment Aggregator (PA)? Payment Aggregator (PA) is an entity that facilitates aggregation of payments made by customers to the merchants through one or more payment channels through the merchant’s interface (physical / virtual) for purchase of goods, services or investment products, and subsequently settles the collected funds to such merchants.  What are the categories of PA? PA – Physical (PA-P) – PA that facilitates transactions where both the acceptance device and payment instrument are physically present in close proximity while making the transaction. PA – Cross Border (PA-CB) – PA that facilitates aggregation of cross-border payments for current account transactions, that are not prohibited under Foreign Exchange Management Act, 1999 (FEMA), for its onboarded merchants through e-commerce mode. The 2 sub-categories of PA-CB are – PA-CB facilitating inward transaction (i.e. tr...
Post a Comment
Read more