The document discusses the history and evolution of banking sector reforms in India over several decades. It covers key milestones like the Banking Regulation Act of 1949, nationalization of banks in 1969 and 1980, and establishment of committees like Narasimham Committee I and II that led banking reforms in 1991 and 1998 respectively. The reforms focused on aspects like reducing government control, increasing competition and privatization, improving asset quality and regulatory changes to strengthen the banking system in India.

1. Banking legislations & reforms

2. Aboutbankingsector
The Indian banking sector is an important
constituent of the Indian financial system.
The banking sector plays a vital role of promoting
business in urban as well as in rural areas in recent
years.
Without it India can not be considered as a healthy
economy.
For the past three decades India's banking system has
several outstanding achievements to its credit

3. Growth phases in banking sector
In over five decades since dependence, banking
system in India has passed through five distinct
phase,
Evolutionary Phase (prior to 1950)
 Foundation phase (1950-1968)
 Expansion phase (1968-1984)
 Consolidation phase (1984-1990)
 Reformatory phase (since 1990)

4. BANKING REGULATION ACT 1949
16th March1949

5. An Introduction:
 Till 1949, There was no separate Act for Banking in India.
 The Central Banking Enquiry Committee recommended the need of a separate
legislation to control banks due to mushroom growth of banks with inadequate
capital, dishonest management, speculative business etc etc..
 Accordingly a bill was introduced in parliament in March 1948.
 It was Passed in parliament in February 1949 and The Banking Regulation Act
1949 came to exist from 16th March 1949.

6. Definition of banking
Banking:
Sec 5 (b) of the Act defines Banking as,
“Accepting for the purpose of lending or investment, of deposits
of money from the public, repayable on demand or other wise, and
withdrawable by cheque , draft, order or otherwise.”
Banking Company:
Sec 5 (c) of the Act defines Banking as,
“A company which transacts the business of banking in India.”

7. Section 6
• Specified Business.
• Prohibits banking companies
from taking part in trading
and speculative activities.
• Thereby landing themselves
in danger.

8. Section 7(Amended in 1963)
• No company other than a
banking company shall use as
part of its name any of the words
bank, banker or banking.
• No company shall carry on the
business of banking in India
unless it uses as part of its name
at least one of such words.

9. Section 11
Amendment Act 1962
 Indian Banking Company commencing
Banking Business for the 1st time,
minimum paid up capital Rs. 5,00,000.
 Places in business for more than one state,
minimum paid up capital is Rs. 10,00,000.
January 1993 : Private Sector Banks shall be
Rs.100crore.
August 1996 : Local Area Banks shall be Rs. 5crore.

10. Section 12(1) of the act lays down that the
subscribed capital of a banking company must not be
less than one half of the authorized capital.
Amended in 1994 :The maximum voting rights of
any one shareholder is fixed by the act , as amended
in 1994 at 10% of the total voting rights.
According to sec 16: No Banking company
incorporated in India shall have as director any
person who is director of another banking company.

11. Amendment Act 1958: To safeguard the interest of
depositors and provide for the simplification and
speedy disposal of winding up proceeding of the
banks.
 Prohibits a banking company from making loans or
advances on the securities of its own shares.
Amended in 1962 sec 24: Every banking company
require to maintain reserves in gold, cash or highly
liquid securities.

12. Banking Companies & The RBI
Section 21 of the Act confer the powers of RBI to
determine the policy in relation to advances to be
followed by banking companies.
Section 22 of the Act requires every banking
company to obtain a license from the RBI for
carrying or commencing banking business in INDIA.
Section 36 of the Act Reserve bank is required to
make an annual report to the central government on
the trend and progress of banking in the country.

13. BANKING COMPANIES (AMENDMENT) ACT 1960
Section 34(A)
The banking company is
not required to publish
the information in the
Balance Sheet or Profit
and Loss Account which is
not required according
to the Law.

14.  The reserve bank and the government with
additional power aimed at rehabilitation of
bank difficulties.
BANKING COMPANIES
(secondAMENDMENT) ACT 1960

15. RESERVE BANK had taken power to reconstruct and
amalgamate two or more substandard banks with well
managed institutions.
Banking companies(amendment) act,1961

16. Objective:
1st . To strengthen the Banking system
2nd . To enable schedule bank to provide larger
credit to exporters for a longer period.
Salient features:
 Statutory Cash Balance (Sec 42) -It should be 3-15%
of their total time and demand liabilities.
Banking companies(amendment) act,1962

17.  Liquidity Ratio- It
showed a sizeable
decline from around
 Credit Deposit Ratio- It
showed an increment
from around

18. Sec 24 (Amendment) of the banking regulation
Act provides that the liquid assets required to be
maintained should be 25 % of total demand and
time liabilities instead to 20%.
Ratio of Paid up Capital and Reserve to deposits
of scheduled bank declined from about 9% in
1950 to less than 5 % in 1960.

19. Export finance:- Increase in the maturity
period of bills of exchange and promissory
notes from

20. Banking laws(application to corporative societies)act,
1966
This act came into force from 1 March,1966
All cooperative banks to which the provisions of
reserve banks of RBI Act have been extended are
now eligible to borrow in an emergency, from
RESERVE BANK.
Section 22: All existing cooperative banks are
required to apply for the license to RBI within 3
Months of the commencement of act.

21. Section 22 Licensing of Banking
Companies
RBI issues license to a banking company after
inspecting the books of the Banking company.
And after satisfaction of the following
conditions:
Company is in a position to settle all the claims.
Company Should not act against the depositors.
The company should have adequate capital structure and earning
prospectus
Public interest should be saved.
To follow any other condition the bank has to take prior permission of
RBI.

22. DEPOSIT INSURANCE CORPORATION
ACT 1962
It is an Act for the Protection of the depositors.
The DIC has an authorized capital of Rs. 1crore
which is fully paid up by RBI.
SECTION 26 : Empowers the DIC to borrow from
RBI up to maximum of Rs. 5crore.

23. NATIONALISATION OF
COMMERCIAL BANKS
Banking companies(acquisition of undertakings) Act
1970
Central government acquired the undertaking of
the following 14 major Indian Banks which had
deposits of less than Rs. 50crore on the last
Friday of June 1969

24. Nationalized banks(1st phase)
• Central bank
• Reserve Bank of India
• State Bank of India & associates (also
nationalized)
• Punjab National Bank
• Syndicate Bank
• Bank of Baroda
• United Bank of India
• UCO Bank

25. Cont…
• Allahabad Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Dena Bank
• Indian Bank
• Indian Overseas Bank

26. OBJECTIVES
 Expansion of Banking
 Reducing Regional Imbalance
 Developing Banking Habits
 Controlling Private Monopolies
 Encouragement of new classes of entrepreneurs.

27. Nationalized banks(2nd phase)
• 6 More Banks have been nationalized in 1980.
• These banks are:
i. The Andhra Bank
ii. The Corporation Bank
iii. The New Bank of India
iv. The Punjab and Sind Bank
v. The Oriental Bank of Commerce
vi. The Vijaya Bank

30. Reformatory Phase
(1991 Onwards)
Reasons for the formation of the reforms:
Economic crises of 1991
Economy suffered from serious inflationary
pressures, emerging scarcities of essential
commodities and breakdown of fiscal discipline.
Banking sector suffered from -
 Lack of competition
 Low capital base
 Low productivity
 High intermediation cost
 Role of technology was minimal

31. PROBLEMS FACED BY PSBs
 Rising non-performing assets (NPAs)
 Poor credit appraisal.
 Banks and policymakers give a serious thought
to bringing some positive changes in the way
Public sector banks operate.

32. Banking
sector
reforms
Narsimham
Committee I
Narsimham
Committee II

33. The Narsimham Committee I appointed to restore the
financial health of commercial banks and to make their
functioning efficient and profitable
Recommendations aimed at changes according greater
flexibility to bank operations
The Committee submitted its report in November 1991
with 23 recommendations
FIRST PHASE OF REFORMS OF BANKING
SECTOR (1991)

34. The Committee submitted its
report in November 1991. The
main recommendations of this
committee were:
1. Phased reduction of statutory pre-
emption.
2. Interest rate on CRR balances
3. Phasing out of directed credit program
4. Transparency
5. Loan recovery

35. 6. Interest rate deregulation.
7. Restructuring of banks
8. Entry of Private Banks
9. Branch Licensing
10.Capital adequacy ratio
11.Income recognition
12.Control
13.Foreign Banks
14.Supervision of banks

36. 15. Asset classification: The committee
recommended that the assets of the banks should
be classified into 4 categories:
Assets
Standard
No
provision
Sub-
standard
10%
provision
Doubtful
Secured
portion - 20-
50%
Unsecured -
100 %
provision
Loss assets
100%
provision

37. Impact on Indian Banking Sector
 Intense competition
 Lowered pre-emptions
 Broadening the ownership
base of PSBs
 Value Added Services

38. SECOND PHASE OF REFORMS OF
BANKING SECTOR (1998)
 The Committee placed greater importance on structural
measures and improvement in
standards of disclosure and
levels of transparency.
 Recommendations of
Narasimhan Committee II

39. Implemented Recommendations
 New areas
 New instruments
 Risk management
 Customer service
 Universal banking
 Information technology
 Increase in FDI limit

40.  Mergers And Amalgamation
 Guidelines For Anti-Money Laundering
 Managerial Autonomy
 Increase of inflow credit
 Strengthen technology
 Base Rate System Of Interest Rates
 Adoption of global standards
 Management of NPAs

41. Granting of operational autonomy to public sector banks.
Introduction and phased implementation of international
best practices and norms.
Setting up of Credit Information Bureau of India Limited
(CIBIL) for information sharing on defaulters as also other
borrowers.
Introduction of automated screen-based trading in
government securities through Negotiated Dealing System
(NDS).
banking reforms

42. Strict norms pertaining to bad loans and restructured
assets
Consolidation and mergers and entry of new players
Continuous bank licensing
Converting some urban cooperative banks into
commercial banks
Focus on asset–liability management for banks
Increased usage of technology in banking
Focus on financial inclusion
Transparency, improvement in clearing and settlement
practices

43. KYC NORMS
Banks were advised to follow certain customer
identification procedure for opening of accounts.
Recommendations made by the Financial Action Task Force
(FATF) on Anti Money Laundering (AML) standards and on
Combating Financing of Terrorism (CFT).
Money laundering rules and regulation.

44. FUTURE AGENDA FOR REFORMS
 Increase in organisational effectiveness.
 Opening more and more banks and ATMs.
 Increase in tax rate on long term capital
again.
 Use of latest Technology.

45. Summarizing The Reforms
 Long term relationship
 Pervasive in covering all
problem areas
 Passed through a series of
discussion
 Mentioned in the annual
report of RBI

47. Banking Sector In India
Reserve Bank India
Scheduled banks
Commercial
banks
Co-operative
banks
Foreign
banks(46)
Regional
rural
banks(56)
Urban co-
operatives
(53)
State co-
operative(31)
Public sector
banks(27)
Private sectors
banks(23)
State bank of
India(6)
Other nationalized
banks(21)
Old(15) New(8)

48. Technology In Banking
 Revolutionized banking practices
 WAN , INFINET , IPSS
 EFT
 Debit and credit cards
 Phone banking
 ATM
 Internet banking

49. Group members
JYOTI YADAV
SURYADIPTA DUTTA