Banking regulation act

Banking Regulation Act,
1949
Project Report Submission on Banking
Name: Sandeep K Bohra
Class: B.B.A LL.B. Sem III
Roll No.: 19
Submitted To: Mr. Praful Nahata

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As a part of the BBA Curriculum and in order to gain practical
Knowledge in the field of management, we are required to make
a report on “Banking Regulation Act, 1949 ”The Basic
Objective behind doing this project report is to get knowledge
tools of different tools of banking.
In this project report we have included various concepts, effects
and implications regarding endorsement to the Indian Banking
and its Regulation.
Doing this Project report helped us to enhance our knowledge
regarding the work in to the Role of RBI and Banking
Regulation Act for governing the Indian Banking System we
doing undergo many experiences related with our topic
concepts. Through this report we come to know about
importance of team work and role of devotion towards the work.

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Acknowledgement
To make any project, essential requirement is able guidance and
references without which project is incomplete. I am very much
thankful to Mr. Praful Nahata and who has provided me an
opportunity and motivation to gain knowledge through this type
of project. I shall get practical knowledge from this project and
this will help me a lot in my career.
I am also thankful to Jai Narain Vyas University, Jodhpur for
providing facility of library and computer laboratory, which are
proved as valuable input resources for preparing my project.
I am also obliged by my respondents, whose co-operation has
contributed major part in my project. At last but not the least, I
am thankful to all my colleagues, friends and other persons who
have directly and indirectly helped me during preparation of
report.
Thank You

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“Certificate Of Completion”
This Certificate is herby awarded to
For Outstanding Performance and Achieving the
Skill of the Subject “Banking Regulation Act, 1949” And
verifying by grade,
On the date of
Signature:

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Index
S.NO Name of Chapters
01. Introduction to Banking Regulation Act
02. Definitions
03. Provisions of act
04. Forms of Business mentioned in the act
05. Functions and powers of RBI
06. Provisions of Capital
07. Provision of Liquidity
08. Licensing of Banks
09. Banking Reforms in India-: Narasimham Committee (1998)
10. Conclusion
11. Photo Gallery
12. Bibliography

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Chapter
1. Introduction
The Banking Regulation Act, 1949 came into force on March 16, 1949.
Till 1949, There was no separate Act for Banking in India. So it was
controlled by Indian Companies Act 1956. It contained various aspects
related to Banking Companies in India. This is regulatory act its purpose
is to:
 Provide safety in the interest of depositors
 Prevent misuse of powers by managers of banks 1
This Act does not supersede but supplement to Companies Act, 19562
initially named Banking Companies Act, 1949 but from March 1, 1966,
the name of the Act was changed to Banking Regulation Act, 1949.
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.3
1 Indian BankingIndustry and information technology 2010 by B.R Nanda
2 A Commentary on Indias Recent Financial Policies
3 A New Beginning: The Turnaround Story of INDIAN BANK by Ranjana Kumar

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Parts and Section of this Act:4
 Part I - Preliminary
o Section 2 to 5A
o Section 5B: Defines 'Banking'
o Section 5C: Defines 'Banking Company' as 'a company which transacts the
business of banking in India
o Section 6: Forms of business in which banking Companies may engage
o Section 7: Use of words "bank", "banker", "banking" or "banking company"
o Section 10BB: Power of Reserve Bank to appoint chairman of a banking company
o Section 11: Requirement as to minimum paid up capital and reserves
o Section 18: Cash Reserve
o Section 21: Power of Reserve Bank to control advances by banking companies.
Rate of interest
o Section 21A: Rate of interest charged by banking companies cannot be subject to
scrutiny of courts.
o Section 22: Licensing of banking companies
o Section 23: Restrictions on opening new and transfer of existing branches etc.
o Section 27: Monthly returns to Reserve Bank
o Section 28: Reserve Bank's power to make public certain information in the
interest of the public
o Sections 29, 30, 31: Audit
 Section 35: Authority to inspect every banking company and its branches
 Section 35A: Power of RBI to issue directions which every banking company in India has
to follow
 Section 36AA: RBIs power to remove managerial power from persons of office..
 Section 36AB: RBIs power to appoint additional directors
 Section 37: Suspension of business
 Section 47A: RBIs power to impose penalty
 Section 58A of Companies Act, 1956 empowers companies to accept deposits from the
public
4 BankingRegulation Act 1949 bare act

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Chapter
2. Definitions
Following definitions commonly used in Banking Regulations Act:-
 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 otherwise, 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.”
Explaination: Any company which is engaged in the manufacture of goods or
carries on any trade and which accepts the deposits of money from public merely
for the purpose of financing its business as such manufacturer or trader shall not be
deemed to transact the business of banking within the meaning of this clause." As
per Section 5(b) of the Banking Regulation Act, 1949 , "banking" means the
accepting, for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawable by cheque, draft,
order or otherwise.
As per Section 5(d) of the Banking Regulation Act, 1949, "company" means any
company as defined in Section 3 of the Companies Act, 1956 and includes a
foreign company within the meaning of Section 591 of that Act. As per section 51
of the Banking Regulation Act, 1949, certain provisions of the Banking Regulation
Act are also applicable to the State Bank of India , any corresponding new bank, a
regional rural bank and any subsidiary bank. "Corresponding new bank" has been
defined under clause (ee) of section 2 of the DICGC Act to mean a corresponding
new bank constituted under the Banking Companies (Acquisition and Transfer of
Undertakings) Acts of 1970 or 1980.

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Chapter
3 Provisions of act
The following are the important provisions under Banking Regulation
Act, 1949 regarding control and regulation of Banking Sector in India.
1. Power to call for and publish the information. Preparation of Accounts and
Balance Sheets. Audit of the Balance sheet and Profit & Loss Account.
2. Prior approval from RBI for appointment of managing directors.
3. Removal of managerial and any other persons from office.
4. Power of RBI to appoint additional directors
5. Moratorium under the orders of a High Court.
6. Winding up of banking companies.
7. Scheme of amalgamation to be sanctioned by the RBI.
8. Power of RBI to apply to the
9. Central Government for an order of mortal rim in respectof a banking company
and for a scheme of reconstruction or amalgamation.
10. Power of RBI to examine the record of proceedings and tender advice in
winding up proceedings.5
11. Power of RBI to inspect and make its report to winding up.
12. Power of RBI to call for Returns and information from the Liquidator of a
Banking company.6
5
Money and Bankingby A Vasudevan
6
Indian BankingIndustry and Information Technology R. K. Uppal

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Other Provisions:7
1. Form of Business.
2. Provision of Capital
3. Management
4. Maintenance of Liquid Assets.
5. Licensing of Banks.
6. Opening of New Banks.
7. Provision Regarding Loans and Advances.
8. Inspection of Banks.
9. Powers of the Reserve Bank of India.
10.Returns to Be Submitted.
11.Acquisition of Business.
12.Mergers/Amalgamations.
13.Winding up of Banking Companies.
14.Issue of No objection certificate for the Alteration of memorandum of a
banking company. Central Government to consult the RBI for making rules
regarding banking companies. Recommend to the Central Government for
exempting any bank from the provisions of the Banking Regulation Act
1949.8
7 Banking Law Digest Vol. 3-1 byT.L tannan
8 RBI Memorandum & journals

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Chapter
4 Forms of Business mentioned in the act
Banks can only do the business which is mentioned u/s 5 (c) and 6 of the
Act. It consist of :-
1. Main Functions/Business.
2. Subsidiary functions/Business.
Main Functions/Business:
1. Accepting Deposits
The bank collects deposits from the public. These deposits can be of
different types, such as :-
 Saving Deposits
 Fixed Deposits
 Current Deposits
 Recurring Deposits
a. Saving Deposits This type of deposits encourages saving habit among the
public. The rate of interest is low. At present it is about 5% p.a. Withdrawals of
deposits are allowed subject to certain restrictions. This account is suitable to
salary and wage earners. This account can be opened in single name or in joint
names.
b. Fixed Deposits Lump sum amount is deposited at one time for a specific period.
Higher rate of interest is paid, which varies with the period of deposit. Withdrawals
are not allowed before the expiry of the period. Those who have surplus funds go
for fixed deposit.

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c. Current Deposits This type of account is operated by businessmen.
Withdrawals are freely allowed. No interest is paid. In fact, there are service
charges. The account holders can get the benefit of overdraft facility.
d. Recurring Deposits This type of account is operated by salaried persons and
petty traders. A certain sum of money is periodically deposited into the bank.
Withdrawals are permitted only after the expiry of certain period. A higher rate of
interest is paid.
2. Granting of Loans and Advances
The bank advances loans to the business community and other members of
the public. The rate charged is higher than what it pays on deposits. The
difference in the interest rates (lending rate and the deposit rate) is its profit.
The types of bank loans and advances are :-
 Overdraft
 Cash Credits
 Loans
 Discounting of Bill of Exchange
a. Overdraft This type of advances are given to current account holders. No
separate account is maintained. All entries are made in the current account. A
certain amount is sanctioned as overdraft which can be withdrawn within a certain
period of time say three months or so. Interest is charged on actual amount
withdrawn. An overdraft facility is granted against a collateral security. It is
sanctioned to businessman and firms.
b. Cash Credits The client is allowed cash credit upto a specific limit fixed in
advance. It can be given to current account holders as well as to others who do not
have an account with bank. Separate cash credit account is maintained. Interest is
charged on the amount withdrawn in excess of limit. The cash credit is given
against the security of tangible assets and / or guarantees. The advance is given for
a longer period and a larger amount of loan is sanctioned than that of overdraft.
c. Loans It is normally for short term say a period of one year or medium term say
a period of five years. Now-a-days, banks do lend money for long term.

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Repayment of money can be in the form of installments spread over a period of
time or in a lumpsum amount. Interest is charged on the actual amount sanctioned,
whether withdrawn or not. The rate of interest may be slightly lower than what is
charged on overdrafts and cash credits. Loans are normally secured against
tangible assets of the company.
d. Discounting of Bill of Exchange The bank can advance money by discounting
or by purchasing bills of exchange both domestic and foreign bills. The bank pays
the bill amount to the drawer or the beneficiary of the bill by deducting usual
discount charges. On maturity, the bill is presented to the drawee or acceptor of the
bill and the amount is collected.
Subsidiaryfunctions/Business:
1. Agency Functions
The bank acts as an agent of its customers. The bank performs a number of
agency functions which includes :-
 Transfer of Funds
 Collection of Cheques
 Periodic Payments
 Portfolio Management
 Periodic Collections
 Other Agency Functions
a. Transfer of Funds The bank transfer funds from one branch to another or from
one place to another.
b. Collection of Cheques The bank collects the money of the cheques through
clearing section of its customers. The bank also collects money of the bills of
exchange.
c. Periodic Payments On standing instructions of the client, the bank makes
periodic payments in respect of electricity bills, rent, etc.

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d. Portfolio Management The banks also undertakes to purchase and sell the
shares and debentures on behalf of the clients and accordingly debits or credits the
account. This facility is called portfolio management.
e. Periodic Collections The bank collects salary, pension, dividend and such other
periodic collections on behalf of the client.
f. Other Agency Functions They act as trustees, executors, advisers and
administrators on behalf of its clients. They act as representatives of clients to deal
with other banks and institutions.
2. GeneralUtility Functions
The bank also performs general utility functions, such as :-
 Issue of Drafts, Letter of Credits, etc.
 Locker Facility
 Underwriting of Shares
 Dealing in Foreign Exchange
 Project Reports
 Social Welfare Programmes
 Other Utility Functions
a. Issue of Drafts and Letter of Credits Banks issue drafts for transferring money
from one place to another. It also issues letter of credit, especially in case of,
import trade. It also issues travellers' cheques.
b. Locker Facility The bank provides a locker facility for the safe custody of
valuable documents, gold ornaments and other valuables.
c. Underwriting of Shares The bank underwrites shares and debentures through
its merchant banking division.
d. Dealing in Foreign Exchange The commercial banks are allowed by RBI to
deal in foreign exchange.
e. Project Reports The bank may also undertake to prepare project reports on
behalf of its clients.

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f. Social Welfare Programs It undertakes social welfare programs, such as adult
literacy programs, public welfare campaigns, etc.
g. Other Utility Functions It acts as a referee to financial standing of customers. It
collects creditworthiness information about clients of its customers. It provides
market information to its customers, etc. It provides travelers’ cheque facility.
Chapter
5 Functions and powers of RBI
Under Section36 of the Act, following powers given to RBI:
(1) The Reserve Bank may:
(a) caution or prohibit banking companies generally or any banking company in
particular against entering into any particular transaction or class of transactions,
and generally give advice to any banking company;
(b) on a request by the companies concerned and subject to the provisions of
section 44A, assist, as intermediary or otherwise, in proposals for the
amalgamation of such banking companies;
(c) give assistance to any banking company by means of the grant of a loan or
advance to it under clause (3) of sub-section (1), of section 18 of the Reserve Bank
of India Act, 1934 (2 of 1934)
(d) at any time, if it satisfied that in the public interest or in the interest of banking
company or its depositors it is necessary so to do,] by order in writing and on such
terms and conditions as may be specified therein:
(i) require the banking company to call a meeting of its Directors for the
purpose, of considering any matter relating to or arising out of the affairs of
the banking company, or require an officer of the banking company to
discuss any such matter with an officer of the Reserve Bank.

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(ii) depute one or more of its officers to watch the proceedings at any
meeting of the Board of Directors of the banking company or of any
committee or of any other body constituted by it; require the banking
company to give an opportunity to the officers so deputed to be heard at
such meetings and also require such officers to send a report of such
proceedings to the Reserve Bank;
(iii) require the Board of Directors of the banking company or any
committee or any other body constituted by it to give in writing to any
officer specified by the Reserve Bank in this behalf at his usual address all
notices of, and other communications relating to, any meeting of the Board,
committee or other bodyconstituted by it;
(iv) Appoint one or more of its officers to observe the manner in which the
affairs of the banking company or of its officers or branches are being
conducted and make a report thereon;
(v) Require the banking company to make, within such time as may be
specified in the order, such changes in the management as the Reserve Bank
may consider necessary
(2) The Reserve Bank shall make an annual report of the Central Government on
the trend and progress of banking in the country, with particular reference to its
activities under clause (2) of section 17 of the Reserve Bank of India Act, 1934 (2
of 1934), including in such report its suggestions, if any, for the strengthening of
banking business throughout the country.
(3) The Reserve Bank may appoint such staff at such places as it considers
necessary for the scrutiny of the returns, statements and information furnished by
banking companies under this Act, and generally to ensure the efficient
performance of its functions under this Act.9
9 Powers of RBI defined under BankingRegulation Act, 1949 – in section 36

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Chapter
6 Provisions of Capital
Provisions of Capital classified in 2 parts:-
1. Banking Companies IncorporatedIn India.
2. Banking Companies IncorporatedOutside India.
Banking Companies Incorporated In India:
1. If it has,10
a) A place of business in more than one state, should have an aggregate minimum
paid up capital and reserves of Rs 5,00,000.
b) Place or Places of Businesses in more than one state and any such place is or
places of businesses are in Bombay or Calcutta or both should have an aggregate
minimum paid up capital and reserves of Rs 10, 00,000.
2. If it has all its business places in one state but none in Bombay or Calcutta) In
Respect of the principal place of business it should have an aggregate of minimum
paid up capital and reserves of Rs 1,00,000.
b) in respect of each of its other places of business situated in the district of
principal business Rs 10,000.
c) in respect of each place of business situated elsewhere in the state outside the
same district Rs 25,000. Subject to an overall limit of 5,00,000.
3. If it has only one place business and that also not in Bombay or Calcutta, the
aggregate value of paid up capital reserve should be Rs 50,000.
10 BankingLaw and Negotiable Instrument Act by R.K Bangia

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4. If it has all its places of business in one state, and one or more of which is or are
situated in the city of Bombay or Calcutta, it should have an aggregate minimum
paid capital and reserves of Rs 5, 00,000, plus in respect of each place of business
situated outside the city of Bombay or Calcutta Rs 25,000. Subject of an overall
limit of Rs 10, 00,000.
Banking Companies Incorporated Outside India:
If it has,11
a) A place of business in Bombay or Calcutta or Both, should have an aggregate
minimum paid up capital and reserves of Rs 20,00,000.
b) If it has No Place of Business in Bombay or Calcutta 12 , should have an
aggregate minimum paid up capital and reserves of Rs 15,00,000.
11 BankingLaw and Negotiable Instrument Act by R.K Bangia
12 Now Kolkata

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Chapter
7 Provision of Liquidity
Statutory liquidity ratio:13
According to Sec 2414, Every banking company in India is required to maintain
cash, gold, or unencumbered approved security, valued at a price not exceeding the
current market price and not less than 23 % of its time and demand liabilities.
CashReserve:
Sec 1815 of the Act lays down that every banking company should maintain 4.25%
of total of its time and demand deposits in the form of cash reserves with RBI.
Difference BetweenSLR and CRR:16
 SLR restricts the bank’s leverage in pumping more money into the
economy. On the other hand, CRR, or cash reserve ratio, is the portion of
deposits that the banks have to maintain with the Central Bank to reduce
liquidity in economy. Thus CRR controls liquidity in economy while SLR
regulates credit growth in the Economy.
 The other difference is that to meet SLR, banks can use cash, gold or
approved securities whereas with CRR it has to be only cash. CRR is
maintained in cash form with central bank, whereas SLR is money deposited
in govt. securities.CRR is used to control inflation.
13 Indian BankingIndustry and Information Technology R. K. Uppal
14 Sec 24, BankingRegulation Act 1949-CSnotes.in
15 Sec 18, BankingRegulation Act 1949- CSnotes.in
16 Diffbetween.comDifferences between SLR and CRR

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Chapter
8 Licensing of Banks
Licensing as may in following ways,
 Every banking company in India should obtain a license from the RBI
before commencing the business. It will grand license only after the detailed
inspection considering so many factors.
 It should obtain prior permission from Reserve Bank of India for opening
new place of business either in or abroad and also for changing the location.
Entry Norms for private banks:
 Initial minimum paid up capital should be 200 Crore and have to be raised to
300 Crore within 3 years of commencement of Business.
 Promoters contribution should be minimum of 40% paid up capital, it will be
locked for 5 years from the date of licensing.
 Initial capital other than promoters contribution could be raised through
public issue or placement.
 While augmenting capital to Rs 300 Crore within 3 years, Promoters have to
contribute at least 40 % of the fresh capital, which will also locked for 5
years.
 NRI participation in banks equity shall not be exceed than 40 %.
 No large industrial house can promotea new bank.
 NBFCs with good track record can become banks, subject to specified
criteria.
 A minimum capital adequacy ratio of 10 % shall be maintained on a
continuous basis from commencement of operations.
 Priority sector lending target is 40% of net bank credit as in case of other
domestic banks. It is also necessary to open 25% of the branches in rural
semi urban areas.

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Return filing:17
Banking Companies should submit returns to the RBI in prescribed form and
manner as at the close of business on the last Friday of every month or just
preceding day if that day is a public holiday.
Acquisition of business:18
Sec 36 AE to 36 AJ provide for acquisition of banking companies by the central
government on the recommendation of RBI. Before acquiring the banking
company, the central government shall give a reasonable opportunity to the bank to
explain their stand.
Mergers and amalgamation:19
The scheme of Merging and Amalgamation is approved by the requisite majority
of shareholders in accordance with the provisions of Section 44A. It shall be
submitted to the Reserve Bank for sanction and shall, if sanctioned by the Reserve
Bank by an order in writing passed in this behalf, be binding on the banking
companies concerned and also on all the shareholders thereof.
Winding up of business:20
A banking company can be wound up like any other company. Reserve bank will
act as a liquidator of the banking company.
17 Indian Bankingand FinancingSystem-Page85-87
18 Indian Bankingand FinancingSystem-Page85-88
19 Indian Bankingand FinancingSystem-Page90
20Indian Bankingand FinancingSystem-Page 91

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Chapter
9 Banking Reforms in India-:
Narasimham Committee (1998)
The 1998 report of the Committee to the GOI made the following major
recommendations:
1. Autonomy in Banking21
Greater autonomy was proposed for the public sector banks in order for them to
function with equivalent professionalism as their international counterparts. For
this the panel recommended that recruitment procedures, training and remuneration
policies of public sector banks be brought in line with the best-market-practices of
professional bank management. Secondly, the committee recommended GOI
equity in nationalized banks be reduced to 33% for increased autonomy. It also
recommended the RBI relinquish its seats on the board of directors of these banks.
The committee further added that given that the government nominees to the board
of banks are often members of parliament, politicians, bureaucrats, etc., they often
interfere in the day-to-day operations of the bank in the form of the behest-lending.
As such the committee recommended a review of functions of banks boards with a
view to make them responsible for enhancing shareholder value through
formulation of corporatestrategy and reduction of government equity.
To implement this, criteria for autonomous status was identified by March 1999
(among other implementation measures) and 17 banks were considered eligible for
autonomy. But some recommendations like reduction in Government's equity to
33%, the issue of greater professionalism and independence of the board of
directors of public sector banks is still awaiting Government follow-through and
implementation.
21 Narasimha Committee Reports and Recommendations vol.1-3 page 532

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2. Reform in the role of RBI22
First, the committee recommended that the RBI withdraw from the 91-day treasury
bills market and that interbank call money and term money markets be restricted to
banks and primary dealers. Second, the Committee proposed a segregation of the
roles of RBI as a regulator of banks and owner of bank. It observed that "The
Reserve Bank as a regulator of the monetary system should not be the owner of a
bank in view of a possible conflict of interest". As such, it highlighted that RBI's
role of effective supervision was not adequate and wanted it to divest its holdings
in banks and financial institutions.
Pursuant to the recommendations, the RBI introduced a Liquidity Adjustment
Facility (LAF) operated through repo and reverse repos to set a corridor for money
market interest rates. To begin with, in April 1999, an Interim Liquidity
Adjustment Facility (ILAF) was introduced pending further upgradation in
technology and legal/procedural changes to facilitate electronic transfer. As for the
second recommendation, the RBI decided to transfer its respective shareholdings
of public banks like State Bank of India (SBI), National Housing Bank (NHB) and
National Bank for Agriculture and Rural Development (NABARD) to GOI.
Subsequently, in 2007–08, GOI decided to acquire entire stake of RBI in SBI,
NHB and NABARD. Of these, the terms of sale for SBI were finalised in 2007–08
itself.
3. Strongerbanking system 23
The Committee recommended for merger of large Indian banks to make them
strong enough for supporting international trade. It recommended a three tier
banking structure in India through establishment of three large banks with
international presence, eight to ten national banks and a large number of regional
and local banks. This proposal had been severely criticized by the RBI employees
union. The Committee recommended the use of mergers to build the size and
strength of operations for each bank. However, it cautioned that large banks should
merge only with banks of equivalent size and not with weaker banks, which should
be closed down if unable to revitalise themselves. Given the large percentage of
non-performing assets for weaker banks, some as high as 20% of their total assets,
the conceptof "narrow banking" was proposedto assist in their rehabilitation.

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4. Non-performing assets24
Non-performing assets had been the single largest cause of irritation of the banking
sector of India. Earlier the Narasimham Committee-I had broadly concluded that
the main reason for the reduced profitability of the commercial banks in India was
the priority sector lending. The committee had highlighted that 'priority sector
lending' was leading to the buildup of non-performing assets of the banks and thus
it recommended it to be phased out. Subsequently, the Narasimham Committee-II
also highlighted the need for 'zero' non-performing assets for all Indian banks with
International presence. The 1998 report further blamed poor credit decisions,
behest-lending and cyclical economic factors among other reasons for the buildup
of the non-performing assets of these banks to uncomfortably high levels. The
Committee recommended creation of Asset Reconstruction Funds or Asset
Reconstruction Companies to take over the bad debts of banks, allowing them to
start on a clean-slate. The option of recapitalisation through budgetary provisions
was ruled out. Overall the committee wanted a proper system to identify and
classify NPAs, NPAs to be brought down to 3% by 2002 and for an independent
loan review meachnism for improved management of loan portfolios. The
committee's recommendations let to introduction of a new legislation which was
subsequently implemented as the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 and came into force with
effect from 21 June 2002.
5. Capital adequacyand tightening of provisioning norms25
To improve the inherent strength of the Indian banking system the committee
recommended that the Government should raise the prescribed capital adequacy
norms. This would also improve their risk taking ability. The committee targeted
raising the capital adequacy ratio to 9% by 2000 and 10% by 2002 and have penal
provisions for banks that fail to meet these requirements. For asset classification,
the Committee recommended a mandatory 1% in case of standard assets and for
the accrual of interest income to be done every 90 days instead of 180 days.
To implement these recommendations, the RBI in Oct 1998, initiated the second
phase of financial sector reforms by raising the banks' capital adequacy ratio by 1%
and tightening the prudential norms for provisioning and asset classification in a
phased manner on the lines of the Narasimham Committee-II report. The RBI
targeted to bring the capital adequacy ratio to 9% by March 2001. The mid-term

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Review of the Monetary and Credit Policy of RBI announced another series of
reforms, in line with the recommendations with the Committee, in October1999.
6. Entry of foreignbanks26
The committee suggested that the foreign banks seeking to set up business in India
should have a minimum start-up capital of $25 million as against the existing
requirement of $10 million. It said that foreign banks can be allowed to set up
subsidiaries and joint ventures that should be treated on a par with private banks.
Chapter 10: Conclusion
Banking systems have been with us for as long as people have been
using money. Banks and other financial institutions provide security for
individuals, businesses and governments, alike. Let's recap what has
been:
In general, what banks do is pretty easy to figure out. For the average
person banks accept deposits, make loans, provide a safe place for
money and valuables, and act as payment agents between merchants and
banks.
Banks are quite important to the economy and are involved in such
economic activities as issuing money, settling payments, credit
intermediation, maturity transformation and money creation in the form
of fractional reserve banking.
From the 1991 India economic crisis to its status of third largest
economy in the world by 2011, India has grown significantly in terms of
economic development. So has its banking sector.

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Photo Gallery
Hon’ble Prime Minister Shree Narendra Modi with RBI Governor Mr. Raghuram Rajan
RBI Former Governors with Former Prime Minister Shree Manmohan Singh

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Bibliography
 Indian Banking Industry and information technology 2010 by B.R
Nanda
 A Commentary on Indias Recent Financial Policies
 A New Beginning : The Turnaround Story of INDIAN BANK by
Ranjana Kumar
 Money and Bankingby A Vasudevan
 Indian Banking Industry and Information Technology R. K. Uppal
 Banking Law and Negotiable Instrument Act by R.K Bangia
 Indian Banking and Financing System
 Narasimha Committee Reports and Recommendations vol. 1-3
 10 Commandments for Financial Freedom Mehrab Irani
 Banking Law and Practice In 3 Vol With CD by M J Sethna by R
K Gupta
 Bank Officers Conduct Discipline and Appeal Regulations by S K
Dey Roy
 WWW.Diffbetween.com
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