Banking Law


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Banking Law

  1. 1. Banki ng l aw
  2. 2. Banki ng Law  Legislations  Banking Regulations Act 1949  Reserve Bank Of India Act 1934
  3. 3. Banki ng Law  Banking Regulations Act 1949 Section 5(b)defines banking as accepting for the purpose of lending or investing of deposits of money from the public repayable on demand, and withdrawal by cheque, draft or order Permitted business of Banking Borrowing, lending or advance of money, dealing in bills of exchange, hundis promissory notes …..  Acting as agents for government or local authority or any other person or persons Contracting for public and private loans and negotiating and issuing the same Continued…………….
  4. 4. Banki ng Law  Dealing with issues of shares, loans , debentures etc for any company  Carrying on and transacting every kind of guarantee and indemnity business  Undertaking and executing trusts  Undertaking the administration of estates as executor trustee or otherwise  Selling, improving, managing, developing, exchanging, leasing, mortgaging or dealing with any or all maters of the property or compampany  Any other form of business as specified by the government in the Official Gazette
  5. 5. Banki ng Law  Business prohibited for Banks  No banking company shall directly or indirectly deal in the buying or selling or bartering of goods except in connection with the realization of security given to or held by it.
  6. 6. Banki ng Law  Licensing of Banking Companies  Section 22 specifies that RBI will issue license to a banking company after inspecting the books of the banking company and satisfaction of the following conditions  That the company is in a position to pay its present or future depositors in full as teir claims accrue  That he proposed management will not be prejudicial to the public interest or to the interest of its depositors  That the company has adequate capital structure and earning prospects continued …………………
  7. 7. Banki ng Law  The RBI can cancel the license of the bank if it finds If the company ceases to carry on banking business in India Fails to comply any of the conditions imposed on it under subsection(1), 3,3(A) Section 23 deals with opening of branches
  8. 8. Banki ng Law  Restrictions on loans and advances  Section 20 (notwithstanding anything to the contrary in section 77 of the companies act 1956 ) no company shall  Grant loans and expenses on the security of its own shares  Enter into any commitment for granting any loan or advance to or on behalf of  Any of its directors  Any firm in which any director is interested as partner, guarantor or employee  Any individual in respect of whom any of the directors is partner or guarantor
  9. 9. Banki ng Law  Management of Banking Companies  Section 10 prohibits employment of managing agents Section 10(a) specifies that 51% of directors in any board of directors of banking companies shall satisfy the following conditions:  Shall have special knowledge of one of the following  Accountancy  Agriculture or rural economy  Co-operation  Economics  Finance  Law  Small-scale industry  Any other matter the knowledge and experience of which in the opinion of the RBI be useful to the banking company
  10. 10. Banki ng Law Shall not have substantial interest in, or be connected with, whether as employee, manager or managing agent : Any company not registered under section 25 Any firm which carries on any trade, commerce or industry which in either case is not a small-scale industrial concern Be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial concern
  11. 11. Banki ng Law  If the above criteria is not met RBI may  Instruct to reconstruct the composition of the board  Remove a director and appoint a person of its choice It will be deemed that such an individual be elected by the banking company
  12. 12. Banki ng Law  Subsection 2(a) states that a director  Cannot hold office for more than eight years  Once removed from his office cannot be reappointed for next 14 years  Section 16 any person who is already director of a banking company is barred from directorship in any other banking company Directors appointed by the RBI are exempt from this rule
  13. 13. Banki ng Law  Reserve Bank Of India Act 1934  Central bank of India  Established April1,1935 under Reseve Bank of India Act 1934  Was nationalized in 1948  Performs the function of Central Banking Supervisory control of banks Promotional banking
  14. 14. Banki ng Law  Central Banking Function  Issue of Currency  Issues and regulates banknotes of all denominations through a separate issues department  Required to maintain gold and foreign exchange reserves in the form of minimum reserve systems  Banker to Government  Banker to the central and state governments transacts business by  Maintaining cash balance  Receiving and making payments  Managing public debt  Providing advances to the government for 90 days  Advising government on floating of loans and legislation affecting banking continued ………………
  15. 15. Banki ng Law  Bankers and lenders of last resort  Scheduled banks can borrow from RBI on basis of eligible securities  Obtain financial accommodation by rediscounting their bills of exchange  Supervision of banks : the RBI has statutory power to regulate the credit generated by banks  Section 21 RBI can control the advances against commodities under Selective Credit Control Mechanism it can stipulate the  The purpose  Margin  Rate of interest continued ……….
  16. 16. Banki ng Law  The volume of credit is normally controlled through the regulatory instruments of bank rate, open market operations and variable cash reserve requirements. Control over bank rate is liberalized. However it remains a bench mark in the fluctuating interest rate regime. Bank rate is the rate of interest at which the RBI rediscounts bills of exchange RBI can impound bank reserves to maintain the liquidity of assets in the form of statutory liquidity ratio, the following assets are taken into account Cash in hand (India) Balance in current account with India Investment in government securities
  17. 17. Thank you !