Legal Framework Of Regulation of Banks

Legal Framework Of Regulation of Banks

RBI Act 1934 : The act deals with the constitution, powers and functions of Reserve Bank. The act does not deal with the regulation of the banking except Section 42 which provides for cash reserves of Scheduled Banks to be kept with bank, with a view to regulating the credit system and ensuring monetary stability.

The Business Of Banking (4)

·         Definition of Banking

·         Section 49A

·         Acceptance Of Deposits by Non-Banking Entities

·         Licence For Banking

·         Permitted Business

·         Prohibited Business

Constitution Of Banks

Bank in India fall under one of the following Categories

Public Sector Banks

Banking Companies

Cooperative Banks

Reserve Bank Of India Act, 1934 (9)

The RBI Act, 1934 was enacted to constitute the RBI.

to regulate the issue of Bank Notes

for keeping reserves for securing the monetary stability in India, and

to operate the currency and credit system of the country to its advantage.

The  last  major  amendment  to  the  Act  by  the  RBI(Amendment)  Act,  1997.

Recently a provision was inserted by the IT Act, 2000 for enabling the Reserve Bank to make regulations for regulating payment systems of banks and financial institutions

The Act deals with the constitution, powers and functions of the RBI. The act does not directly deal with the regulation of the banking system except for Section 42 and Section 18

The Reserve Bank – Central Bank and Regulator of Banks (11)

·         The Reserve Bank is constituted under Section 3 of the RBI, 1934 for taking over the management of currency from the Central Government and carrying the business of Banking in accordance with the provisions of the Act.

·         The Reserve Bank is a body corporate having perpetual succession and common seal and shall sue and can be sued by others.

Sriniva Kante

·         The bank functions under the general superintendence and directions of central board of directors. The board has to abide by direction given by the cental govt. in a public interest after consultation with the governor of the RBI.

·         Section 22 : Licence of banking

·         Section 20 : banker to central and state fovt.

·         Bank Regulator :

Government as a Regulator of Banks

The Reserve Bank is Primary regulator of banks. But the government has also conferred extensive powers under the RBI Act and the BR Act either directly or indirectly over the banks.

The Government holds the entire capital of the Reserve Bank and appoints the Governor and the members of the Central Board and has power to remove them.

Act	Section
RBI Act	7(1)	Power to issue directions to the RBI in public interest after
		consultation with the governor
BR Act	4 & 53	Power to suspend operations of the BR Act / to give
		exemptions from any of the provisions of the Act on the
		recommendations of the RBI.
BR Act	6(1)(0)	Power to notify other forms of business which bank may
		undertake.
BR Act	10B	Removal of managerial personnel
BR Act	14A
BR Act	19	Approval of  Central Govt.  is required for formation of
		subsidiary.
BR Act	22	Licence for banking
BR Act	24(2)	Notification of banks for the purpose of Maintenance of
		assets
BR Act	29	Notification with reference to accounts and balance sheet
BR Act	35	Issue of directions for inspection of banks
BR Act	36AA	Removal of managerial personnel
BR Act	36AE	Power to acquire undertaking of banks
BR Act	45	Suspension of business and amalgamation of banks
BR Act	52	Rule making powers (details to be furnished in various
		returns,  List  of  debtors  to  be  submitted  by  Official
		Liquidator.

Srinivas Kante

Control Over Cooperative Banks (13)

A cooperative bank is cooperative society engaged in the business of banking. All cooperative banks operating in one state only are registered with State

Cooperative Societies Act concerned. In case of cooperative banks operating in more than one state, the Multi-Unit Cooperative Societies Act, 1986 is applicable.

Section 56 of BR Act: Cooperative banks come under the regulatory powers of the Reserve Bank.

RBI	State Govt
Licensing  and  regulation  of  banking	The formation and management of  a
business	cooperative  society  running  banking
	business are under the control of the
	State Govt.

In the case of cooperative banks which are registered under Section 13 of the DICGC (Deposit Insurance and Credit Guarantee Corporation Act), the Reserve Bank has the power to order their winding up.

Regulation By Other Authorities

Section 6 of the BR Act, bank may undertake certain non-banking business in addition to the business of banking. In that case banks may subject to regulatory control of other agencies. (Shares and debentures: SEBI)

·         Central Govt can give directions to the Reserve Bank (True)

·         All business of banks are regulated by the Reserve Bank (false)

·         Central Govt. is Primary regulator of banks. (True)

·         On cancellation of licence of any bank, an appeal lies to Central Govt. (False)

·         Government can exempt a bank from provisions of BR Act on recommendations of RBI.

·         Reserve bank is the Central Bank of the country, and primary regulator for the banking sector. The Government has direct and indirect control over banks.