WHAT IS A BANK? • Section 5(b) of BR Act defines a banking as acceptance of deposits for the purpose of lending or investment • The deposits may be repayable on demand or otherwise and withdrawable by cheque draft or order or otherwise. • Section 49A of BR Act, no person other than bank is authorised to accept deposits withdrawable by cheque.PACS & Govt are exceptions.
CONDITIONS FOR INCLUSION OF BANKS IN SECOND SCHEDULE OF RBI ACT, 1934 [Section 42 (6) (a)] • PAID-UP CAPITAL & RESERVES RS.5 LAKHS AFFAIRS NOT CONDUCTED IN A MANNER DETRIMENTAL TO INTERESTS OF THE BANK’S DEPOSITORS MUST BE ONE OF THE FOLLOWING : • A COMPANY AS DEFINED IN COMPANIES ACT, 1956 • STATE CO-OEPRATIVE BANK OR PRIMARY CO-OPERATIVE BANK OR AN INSTITUTION NOTIFIED BY THE CENTRAL GOVT. IN THIS BEHALF • CORPORATION OR A COMPANY INCORPORATED BY OR UNDER ANY LAW IN FORCE IN ANY PLACE OUTSIDE INDIA.
BUSINESS PERMITTED • Borrowing, lending • Drawing, making, accepting, buying , selling, collecting,promissory notes, bills , debentures, drafts, bill of lading, R/R ,T/R, scrips and other instruments whether transferable or negotiable or not • Providing SDL, SC, sale and purchase of forex, Issuing BG,LC and many other acctivities
PROHIBITED BUSINESS • Section 8 of BR Act, 1949 prohibits Bank from buying or selling goods directly or indirectly • Section 9 of BR Act prohibits a bank from holding an immovable property, howsoever acquired for a period exceeding 07 years from its acquisition except required for own use. The period may be extended by another 05 years by RBI.
DIFFERENT BANKS • SBI set up under SBI Act, 1955 • SBI Associate Banks under SB (subsidiary) Act,1959 • RRBs under RRB Act, 1976 • PSBs under Banking Companies Act, 1970 and 1980 under Section 03 (Acquisition and Transfer of Undertakings) • Cooperative banks under The Banking Laws ( Application to cooperative societies ) act, 1965
RBI ACT,1934 • To regulate the issue of bank notes • For keeping reserves for securing monetary stability in India • To operate the currency and credit system of the country to its advantage • Section 42 for CRR maintenance by the ASCB
RBI ACT,1934 Sec31: Restriction on drawing a DD payable to bearer on demand Sec42: CRR at discretion of RBI 22/06/06 Sec49: Announcement of bank rates, The standard rate at which RBI is prepared to buy or rediscount bill of exchange or commercial papers eligible for purchase. Sec58(b): Penalty for drawing a DD payable on demand
MAJOR POWERS OF RBI • Power to license • Power to appoint or remove banking board personnel • Power to give directions • Power to inspect and supervise banks • Power to collect and furnish credit information • Power to impose penalties • Power to regulate business of the bank
BANKING REGULATION ACT, 1949 License required from RBI under section 22 of the BR Act. The license is issued subject to the conditions:- Adequate capital, Character of proposed management, affairs of the company, capability of company to meet claims of depositors, potential in the area of operations proposed and the interest of public is served by the bank.
BANKING REGULATION ACT,1949 Section 17:-Minimum 20 % of profit to be transferred to reserve fund before declaring dividend by a banking company. Sec.19:- Restriction on holding shares of any company for amount not exceeding 30 % of its own Paid up Capital+Reserves or 30 % of the company’s paid up capital, whichever is less.
BR ACT1949(contd) Sec20: No loan against its own shares Sec23: RBI’s prior permission before opening any new branch Sec24: SLR to be maintained by the banks Sec26: Return on unclaimed deposits for more than 10 years within 30 days from the end of a calendar year Sec45ZA to 45ZF:Nomination facility
CONTINUED • Branch licensing under section 23 • Section 11 details the required minimum paid up capital and reserves of the bank • Section 12 says that the subscribed capital shall not be less than 50 % of AC. Paid up capital shall not be less than 50% of its subscribed capital • A banking company can have only equity or ordinary share. Preference shares issued before 01/07/1944 are exempted
CONTINUED • Section 15, no dividend is payable until all e capitalized expenses are completely written off. • Section 19 (2) says the holding of shares in any company by way of mortgage, pledge or absolute owner shall not be exceeding 30 % of the Paid up capital of the company or 30 % of the paid up capital + Reserves of bank
BOARD OF DIRECTORS • 51 % should have special knowledge • No substantial interest in any company • Period of office not more than 08 years continuously • There can be a full time or part time chairman or MD • The whole time Chairman or MD shall hold the office for a period not exceeding 05 years.
CONTINUED • Chairman may be director of a subsidiary of a bank or of a company registered under section 25 of Companies Act • The RBI can remove a chairman or MD and may appoint another suitable person, but after giving notice to the company and CM/MD. If the bank does not comply the order RBI may remove him. Such CM or MD will be for the residual period only. The company or person may appeal to the CG within 30 days.
CONTINUED • In case of death/resignation/incapacitation of a CM/MD of a bank, temporary arrangements can be made for maximum 04 months with the approval of RBI • If RBI appoints a CM/MD under section 10BB of BR Act, who is not a director of the banking company, he will be deemed as director and may be appointed as CM/MD for a period not more than 03 years. • Exemption under section 10C of BR Act to CM/MD for holding qualification shares and also under section 10A of the act (RBI Appointee ).
CONTINUED • APPOINTMENT OF ADDITIONAL DIRECTORS UNDER SECTION 36AB OF BR ACT • NO QUALIFICATION SHARES REQUIRED • APPOINTMENT FOR 03 YEARS AND MAY BE EXTENDED TO ANOTHER 03 YEARS BY RBI.
B R ACT,1949 • RBI regulates advances of Banks under section 21 of the act • RBI regulates rate of interest and other terms and conditions of acceptance of deposits and loans and advances under section 35 A of BR Act • 45ZA of the Act is for nomination of one person in deposit account.45ZC & 45ZE for safe custody and safe deposit lockers respectively. • Under SCC, RBI sets margin, credit ceiling and rate of interest on specified commodities.
BR ACT CONTINUED • Section 20, no advance against own shares. • No advance to or on behalf of any director. • Section 21 A provides that a transaction between a bank and its debtor cannot be reopened in any court for it being excessive. • Ombudsman is appointed by RBI under section 35A of the BR Act. • Section 17(1) of BR Act says a sum not less than 20 % of profit should be transferred to the reserve fund.
continued • Appropriation from reserve fund to be reported to RBI within 21 days • Foreign Banks to keep 20 % of profit as deposit with RBI each year • Section 42 of RBI Act for CRR • A scheduled Bank is one included in second schedule of RBI • Section 42 (6) of RBI Act empowers RBI to include a bank in the schedule 2 if it has a Paid up Capital not less than Rs.5.00 lac, a company under section 3 of companies act, an institution notified by CG, a corporation or a company incorporated outside India under the foreign laws, state cooperative bank.
continued • Section 24 of BR Act for SLR maintenance • Section 29 of BR Act to prepare balance sheet and profit & loss account on expiry of 12 months • B/S to be signed by the principal officer and minimum three directors . • 03 copies of balance sheet and P & L account to be submitted to RBI within 03 months from the date of closing of books.03 copies are to be sent to company registrar also along with Auditor’s Report.
continued • Return on liquid assets under section 24(3) within 20 days from end of the month to RBI • Monthly return on assets and liabilities as at the close of business on last Friday of previous month to be submitted before end of month to RBI as per section 27 of BR Act
BR ACT,1949 • A quarterly return on assets in India to be submitted to RBI within 01month of the end of the last quarter as per section 25(1) • Return on unclaimed deposits within 30 days of the close of calendar year under section 26 • Every banking company not being a scheduled bank has to furnish a return relating to cash reserve before 20th of every month under section 18(1) of BR Act
STATE BANK OF INDIA • Shares with Central Government • No shareholder can exercise voting rights above 10 % even if their holding is more • Subsidiary Banks have to act as an agent of State Bank under section 36 of SBI SB Act • Subsidiary Bank have to close their books and returns submitted to SBI, RBI & CG within 03 months from the date of closing
SBI ACT,1955 Sec34: SBI will not acquire any immovable property except for the purpose of providing buildings or other accommodation Sec45: No provision of law relating to the winding up of companies shall apply to SBI Regulation3- Shares of SBI are movable properties
SBI ACT,1955 (Contd) Reg 61: Defines indebtness, loan or advance, relatives, specified securities Reg65: Employee not to grant loan or advance to himself Reg66: Employee not to grant loan to his/her relatives Reg80: The seal of SBI
Regional Rural Banks • Section 03 of RRB Act empowers CG to set up an RRB with 35% issued capital with sponsoring bank, 15% with SG and 50% with CG. • Chairman is appointed by Sponsoring Bank and management of the bank is with Board of Directors. • Two or more RRBs can be amalgamated by CG • Transaction of business as per section 5 (b) of BR Act.
NATIONALISED BANK • Set up under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Act, 1980. • No shareholder other than CG can exercise voting rights in excess of 1% of the total voting rights of all the shareholders • Can work as an agent of RBI, if asked • Affairs conducted by Board of Directors • Not more than 06 directors nominated by CG • All the PSBs are scheduled banks under section 42 of RBI Act
COOPERATIVE BANK • Registered either under the state laws or under the Multi-State Cooperative Societies Act. • The BR Act is applicable to cooperative banks • Paid up share capital and reserves are not less than Rs.1.00 lac • Cooperative society require a license from RBI under section 22 of BR Act to carry on banking business.