Banking Regulation Act 1949 and Important Sections PDF Download

The Banking Regulation Act, 1949 is a legislation in India that regulates all banking firms in India. Passed as the Banking Companies Act 1949, it came into force from 16 March 1949 and changed to Banking Regulation Act 1949 from 1 March 1966. It is applicable in Jammu and Kashmir from 1956. The Banking Regulation Act is not pertinent to primary agricultural credit societies, non-agricultural primary credit societies and cooperative land mortgage banks.

In this Article we are Banking Regulation Act 1949 and Important Sections with the Banking Exams (IBPS, SBI & RBI Grade B) Perceptive. These days in lots of Competitive Exam specially in banking sector, questions are directly coming from Important Sections of Banking Regulation Act, 1949 

Banking Definition

According Banking Regulation Act, 1949, "Banking" means the accepting deposit of money from Public, for the purpose of lending or investment, repayable on demand or otherwise, and withdrawal by cheque, draft, order or other wise

Banking Company

Banking Company is a company which transacts the business of banking in India. This company fulfills the state of affairs of being a company as given in companies’ act 1956.

Business allowed for a banking company (Section 6)

• Lending/Borrowing of money with/ without security, issuing travellers’ cheque, buying & selling foreign exchange notes, deposits vaults, collecting & transmitting of money & securities, buying bonds and other securities on the behalf of customers. 
• Transacting and carrying on every kind of guarantee & indemnity business. 
• Selling, managing & realizing any property which comes in possession of the bank in procedure of settlements of claims. 
• Executing and undertaking of trusts 
• Other works which are advancements of main purpose of the company or incidental
• A form of business that is defined by the Central Government in its issued notification

Prohibition on trading (Section 8)

A banking company cannot get in directly or indirectly contracts in buying or selling or exchange of goods.

Disposal of Non Banking assets (Section 9)

Banks cannot hold any property for more than 7 years for the purpose of settlements of debts or obligations. Such time limit of 7 years can be augmented by the Reserve Bank of India for another 5 years, if it thinks appropriate.

Reserve fund (section 17)

Every banking company must generate a reserve fund out of its earnings after tax and interest. Such reserve amount should be at any rate 20 percent of such profits. Exemption can be provided only if the cumulative amount of reserve fund & securities premium is greater than the paid up capital of the company.

Cash reserve (Section 18) 

At least 3 percent of the total demand & time liabilities should be kept as cash reserve or should be secured in current account with Reserve Bank of India. Liabilities will not comprise monies received from Reserve Bank of India/ EXIM bank/ Development bank or any such other bank. Such amount should be deposited/ kept on last Friday of every 2nd fortnight of every month. The return should be deposited before twentieth day of every month stating the particulars of amount deposited to Reserve Bank of India. 

Accounts & balance sheet (Section 29)

Banking companies should plan balance sheet and profit & loss account on last working day of every accounting year in the forms set out in third schedule. Accounts must be signed by atleast three directors where number of directors exceeds three. If number of directors’ fall short of three, then all directors must sign the accounts. In case of banking company incorporated outside the nation, accounts must be signed by principal officer or manager of the company in India.

Auditing of Banking Company (section 30)

• Balance sheet and Profit & Loss made compliant with section 29 must be audited by a person qualified under law to discharge his duties as an auditor 

• The banking company must obtain the approval of Reserve Bank of India before removing/ appointing and re - appointment of auditors. 

• When Reserve Bank of India is not satisfied with financial statements of the bank, it can give order for carrying out a special audit. And cost of such special audit must be put up by the banking company itself. 

• The liabilities, powers and scope of the auditor are same as given in section 227 of companies act 1956.

There are total 55 Sections in the Banking Regulation Act, 1949. Some important sections are listed below:

Section 10 BB: 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.

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

Section 12:  Regulation of paid-up capital, subscribed capital and authorized capital and voting rights of shareholders

Section 21: Power of Reserve Bank to control advances by banking companies

Section 21A: Rates of interest charged by banking companies

Section 22(1): Licensing of banking companies

Section 23: Restrictions on opening of new, and transfer of existing, places of business

Section 29: Accounts and balance-sheet

Section 36 AE : Power of Central Government to acquire undertakings of banking companies in certain cases

Section 44A: Procedure for amalgamation of banking companies.

Note:

• Amalgamation of two banking companies is under the provisions of Section 44A of the Banking Regulation Act, 1949.
• Amalgamation of a banking company with a non-banking company is governed by sections 391 to 394 of the Companies Act, 1956.

Section 47A: Power of Reserve Bank to impose penalty

Section 49A: Restriction on acceptance of deposits withdraw able by cheque.

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