Banking Regulation Act, 1949

1. RBI AND THE BANKING REGULATION ACT, 1949

2. BACKGROUND OF RBI & THE BANKING
REGULATION ACT 1949
 India banking system works with three act:
 RBI Act,1934
 Companies act
 Banking Regulation Act,1949.

3. BACKGROUND (RESERVE BANK OF INDIAACT, 1934)
 RBI established under RBI act 1934 in 1935.
 RBI act 1934, provide power to the RBI under sec22.
 RBI act 1934, give power to government under sec 25.
 Scheduled Bank.
 Non banking financial company.

4. BANKING REGULATION ACT, 1949
 The banking Regulation act,1949 is a legislation in India that regulates all banking firms
in the country.
 Before 1949, companies act was applicable for most of the operations.
 The different objectives of the banking regulation 1949 include the following:
 Safeguard
 Development
 Attune the monetary and credit system to the larger interests.

5. IMPORTANT SECTIONS
 Some of the important section under Banking regulation act 1949:
 Section 5b
 Section 5c
 Section 5(ca)

6. REPO RATE
 Repo or Repurchase option is a means of
short-term borrowing, wherein banks sell
approved government securities to RBI and
get funds in exchange.
 In other words, in a repo transaction, RBI
repurchases govt. securities from banks,
depending on the level of money supply it
decides to maintain in the country’s
monetary system.
 Repo Rate as on 5th September, 2020 is
4.00%.

7. REVERSE REPO RATE
 Reverse Repo rate is the rate at which the RBI
borrows money from commercial banks.
 Banks are always happy to lend money to the RBI
since their money are in safe hands with a good
interest.
 An increase in reverse repo rate can prompt to park
more funds with the RBI to earn high returns on idle
cash.
 It is also a tool which can be used by the RBI to
drain excess money out of the banking system.
 Reverse Repo Rate as on 5th September, 2020 is
3.35%.

8. CASH RESERVE RATIO(CRR)
 It is a bank regulation that sets the minimum reserves
each bank must hold by way of customer deposits
and notes.
 These deposits are designed to satisfy cash
withdrawal demands of customers.
 Deposits are normally in the form of currency stored
in bank vault or with the RBI.
 CRR as on 5th September, 2020 is 5.00%.

9. STATUTORY LIQUIDITY RATIO
 Statutory Liquidity Ratio is the percentage of cash
deposited that commercial bank need to keep with
the RBI on an everyday basis.
 The commercial bank can decide on the total
volume of credit to the customers, only after
maintaining the required level of CRR.
 This percentage is fixed by the Reserve Bank
of India.
 The maximum limit for the SLR was 40% in India.
 SLR as on 6th August, 2020 is 18.50%

10. CAPITALACCOUNT TRANSACTION
 As defined in Section 2(e) of the FEMA, ’capital
account transaction’ means transactions which alerts
the assets or liabilities, including contingent
liabilities outside India, of persons resident in India
or assets or liabilities, in India, of persons resident
outside India and includes transactions referred to in
Section 6(3) of the FEMA.

11. AUTHORIZED DEALER
 An Authorised Dealer (AD) is any person specifically
authorized by the Reserve Bank under Section 10(1) of
FEMA, 1999, to deal in foreign exchange or foreign securities
and normally includes banks.
 Foreign exchange can be purchased from any authorized
person, such as an AD Category-I bank and AD Category II.
Full-Fledged Money Changers (FFMCs) are also permitted to
release exchange for business and private visits.

12. CURRENCY MAMAGEMENT
 Currency management essentially relates to planning, designing, issue and withdrawal
of currency, ensuring its integrity, availability and the maintenance of quality.
 The different objectives of currency management are as follows:
 Assure the smooth cash flow.
 Distribute and circulate sufficient currency by arranging the proper and secured
infrastructure
 Maintain desired quality of notes.
 Withdraw inappropriate notes.
 Manage foreign exchange efficiently.
 Maintain secured and effective processes for accounting

13. ROLE OF RBI
 The RBI plays a vital role in economic growth of the country and maintaining price
stability.
 The aim of the Reserve Bank is to provide good quality notes to members of public.
 Manages currency
 Decides on various denominations of banknotes to be issued.
 Co-ordinates with the Government in the designing of banknotes, including the security
features.
 Estimates the quantity of banknotes that are likely to be needed denomination-wise and
accordingly, places official order or requisition with the various printing presses.

14. MAINTENANCE OF MININUM RESERVES
 The relationship between note issue and its reserve backing is usually done on the basis of
a reserve system by central banks across the world.
 The reserve system provides guidelines for the issue of new currencies.
 In India, currencies are issued by the RBI with the backing of reserves comprised of gold
and foreign exchange (foreign currencies).
 RBI follows Minimum Reserve System at present.
 The Minimum Reserve System (MRS) is followed from 1956 onwards.

15. MAINTENANCE OF MININUM RESERVES
 Minimum Reserve System refers to the reserves kept by the Central Bank (RBI) against
its currency liability.
 Currency issued by RBI is its liability as RBI will have to pay to the currency holder the
amount as promised in the currency note.
 Therefore RBI keeps certain reserves against this liability.
 Under the Minimum Reserve System, the RBI has to keep a minimum reserve of Rs 200
crore comprising of gold coin and gold bullion and foreign currencies.
 Out of the total Rs 200 crores, Rs115 crore should be in the form of gold coins or gold
bullion and 85 crore is in foreign currencies.

16. OBJECTIVES OF CREDIT CONTROL
 To safeguard its gold reserves against internal and external drains
 To maintain stability of internal prices;
 To achieve stability of foreign exchange rate;
 To eliminate fluctuations in production and employment; and
 To assist in economic growth.
 This assistance is required not only in under-developed countries desirous of accelerating
economic development, but also in developed countries desirous of maintaining and
improving their living standards.

17. METHODS OF CREDIT CONTROL
 Quantitative Measures:
 Bank Rate Policy
 Open Market Operations
 Cash Reserve Ratio
 Statutory Liquidity Ratio
 Qualitative Measures:
 Directiveness
 Moral Suasion
 Fixation of Margin Requirements
 Rationing of Credit
 Credit Authorization Scheme

18. CAMELS RATING

19. CONCLUSION
 21-member central board of directors
 It acts as a Central bank authority.
 Makes modern monetary policy framework.
 Maintain liquidity adjustment facility.
 Control capital account flow.
 Financial supervision.
 Open market operation

20. THANK YOU
Presented By:
 Sudhanshu Kumar 19BSP2919
 Sugandha Suman 19BSP2925
 Supriya Ramchandra 19BSP2954
 Surabhi Satish Vyas 19BSP2956
 Suruchi Jain 19BSP2970
 Tabassum Mohd Rafi 19BSP3003
 Takshila Singh 19BSP3005