It is a legislation in India that regulates all banking firms in India. it came into force from 16 March 1949 and changed to Banking Regulation Act 1949 from 1 March 1966. It is applicable in jammu and Kashmir from 1956. Enacted: 10 March 1949 Enacted by: Parliament of India Territorial extent: Whole of India

1. BANKING REGULATION
ACT,1949
PRESENTATION BY:
SUNIL KU. PATRO
B.COM,(CA INTER) & FRM (Lev.2)

2. 2
INTRODUCTION
• 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 order, or otherwise.
• Banking Company means any company which transacts
the business of banking in India.
• Explanation: Any company which is engaged in the
manufacture of goods, or which carries on any trade, and
accepts deposits of money from the public merely for the
purpose of banking within the meaning of this clause.

3. ACT TO HAVE OVERRIDING EFFECT
• Section 5A of the Banking Regulation Act, 1949 provides
of this Act shall have effect notwithstanding anything to
the country contained in :
• Memorandum or Articles of Banking Company
• Any agreement executed by it
• Any resolution passed by the banking company in
General Meeting or by its Board of Directors, whether the
same be registered, executed or passed, as the case
may be.
It is further provided then any provision contained in the
memorandum, articles, agreement or resolution aforesaid
shall, to the extent to which it is repugnant to the provisions
of the Act, become or be void.
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4. RESTRICTION ON USE OF WORD
‘BANK’,ETC.
Section 7 of Act provides that Individual, Firm or Group of Individuals
and any Company other than a Banking Company shall not use as
part of its name or, in connection with its business, any of the words
‘bank’, ‘banker’ or ‘banking’
and
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.
Exception :-
• A Subsidiary of a Banking Company formed for one or more of
the purpose mentioned in Section 19(1), whose name indicates
that it is a subsidiary of that banking company.
• Any association of banks formed for the protection of their
mutual interests and registered under Section 8 of the
Companies Act, 2013.
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5. NOT TO ENGAGE IN TRADING
ACTIVITIES
Section 8 provides that any banking company shall not directly or
indirectly deal in the buying or selling of goods, exception with the
realization of security given to or held by it, or engage in any trade,
or busy, sell or barter goods for others otherwise than:
• In connection with bills of exchange received for collection or
negotiation, or
• With such of its business as referred to in Section 6(i)
But his prohibition does not apply where a banking company is
authorized by CG by issue of notification under section 6(i)(I)
Goods means every kind of moveable property, other than
actionable claims, stock, shares, money, bullion and specie and all
instruments referred to in section 6(i)(a).
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6. HOLDING AN IMMOVABLE
PROPERTY
Section 9 provides that a banking company can hold any
immovable only as follows:
• It required for its own use
• Otherwise, upto a period of 7 years + 5 years with RBI
Approval.
Such extension may be granted where RBI is satisfied
that such extension would be in the interests of the
depositors of the banking company.
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7. PAYMENT OF BROKERAGE OR
COMMISSION
Section 13 provides that a banking company can pay out
directly or indirectly, by way of
• Commission
• Brokerage
• Discount
• Remuneration
in any form in respect of any shares issued by it, any amount
not exceeding in the aggregate two and a half percent of
paid-up value of the said shares.
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8. CHARGE ON FLOATING
ASSETS
Section 14 : A charge shall not be created upon any unpaid
capital of the company, and any such charge shall be invalid.
Section 14A(1) : A floating charge shall not be created on the
undertaking, or any property of the company or any part thereof,
unless the creation of such floating charge is certified in writing
by RBI as not being detrimental to the interests of the depositors
of such company.
Section 14A(2) : Any such floating charge without obtaining the
certificate of RBI shall be invalid.
Section 14A(3) : Any banking company aggrieved by the refusal
of certificate may, within 90 days from the date on which such
refusal is communicated to it, appeal to CG.
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9. PAYMENT OF DIVIDEND
Section 15(1) provides that any banking company shall not
pay dividend on its shares until all its capitalized expenses
including the following have been completely written off.
• Preliminary Expenses
• Organization Expenses
• Share Selling Commission
• Brokerage
• Amount of Losses Incurred, and
• Any other item of expenditure not represented by
tangible assets
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10. PAYMENT OF DIVIDEND
• Section 15(2) provides that a banking company may pay
dividends without writing off:
• Depreciation, if any, in the value of investments in any
case where such depreciation has not actually been
capitalized or otherwise accounted for as a loss.
• Depreciation, if any, in the value of its investment in
shares, debentures or bonds (other than approved
securities) in any case where adequate provision for such
depreciation has been made to the satisfaction of the
auditor of the banking company.
• Bad debts, if any, in any case here adequate provision for
such debts has been made to the satisfaction of the
auditor of the banking company.
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11. APPOINTMENT & VOTING RIGHTS OF
DIRECRORS
Section 16 provides that a banking company incorporated in
India shall not have any personas director on its Board of
Directors if such persons is already a director in any other
company.
The above condition does not apply in relation to a director
who is appointed by the RBI.
Section 16(1) (A) provides that any banking company
incorporated in India shall not have in its BOD more than
three directors , which among themselves are entitled to
exercise voting rights in excess of 20% of the voting rights of
all the shareholder of that banking company.
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12. CREATION OF RESERVE
Section 17(1) provides that every banking company
incorporated in India shall transfer , before declearation of
dividend, at least 20% of profit, as per P&L A/c to Reserve
Fund.
However, CG may, on recommendation of RBI, having
regard to the adequacy of the paid-up capital & reserves of
banking company in relation to its deposit liabilities, declare
by order in writing that the provision of sub-section (1) shall
not apply to the banking company for such period as may be
specified in the order.
Such an order can be passed only when the amount in the reserve
fund together with the share premium account is not less than the
paid-up capital of the banking company.
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13. CREATION OF RESERVE
Section 17(2) provides that where a banking company
appropriates any amount from the reserve fund or share
premium account, it shall within 21 days from the date of
such appropriate report the fact to RBI, explaining the
circumstances relating to such appropriate and RBI may,
extend of 21 days by such period as it thinks fit or condone
any delay in the making of such report.
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14. MAINTENANCE OF CASH
RESERVE
Section 18 provides that every banking company, not being a
scheduled bank, shall maintain in India by way of Cash Reserve.
 With itself, or
 By way of balance in a current account with the Reserve Bank, or
 By way of net balance in current accounts or in one or more of
the aforesaid ways.
 A sum equivalent to at least 4% of
 The total of its Demand & time Liabilities in India.
 As on the Last Friday of the second preceding fortnight and
 Shall submit to Reserve Bank before the 20th day of every month
a return showing the amount so held on
 Alternate Friday during a month
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15. MAINTENANCE OF CASH
RESERVE
With particulars of its demand & time liabilities in India on such
Friday, or if such Friday s a public holiday under the
Negotiable Instrument Act, 1881, at the close of business on
the preceding working day.
• Liabilities in India shall not include:
(a) The paid-up capital or the reserves, or any credit
balance in P&L A/c of the banking company.
(b) Any advance taken from the Reserve Bank,
Development Bank, or small industries bank by the
Banking Company.
(c) In case of a Regional Rural Bank, also any loan taken
by such bank from its sponsor bank.
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16. MAINTENANCE OF CASH
RESERVE
• Fortnight shall mean the period from Saturday to the
second following Friday, both days inclusive.
• Net Balance in Current A/c shall, in relation to banking
company with the State Bank of India or a subsidiary Bank
or a corresponding new bank over the aggregate of the
credit balances in current account held by the said banks
with such banking company.
• The aggregate of the liabilities of the banking company to
SBI, a subsidiary bank, a corresponding new bank, an
RRB, another banking company, a co operative bank, or
any other financial institution notified by CG in this behalf,
shall be reduced by the aggregate of liabilities of all such
banks and institution to the banking company.
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17. BUSINESS ACTIVITIES OF
SUBSIDIARY
Section 19 provides that a banking company may form a subsidiary
for carrying on any of the following activities only :
• The undertaking of any business which, under clauses (a)
to (o) of section 6, is permissible exclusively outside India.
• With the previous permission in writing of RBI, the carrying
on of the business of banking exclusively outside India.
• The undertaking of such other business, which RBI may,
with prior approval of CG, consider to be conducive to the
spread of banking in India or to be otherwise useful or
necessary in public interest.
• A Banking Company cannot be considered to be engaged
in the business activity which is carried on by its subsidiary.
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18. RESTRICTION ON HOLDING SHARES
OF ANOTHER COMPANY
Section 19(2): A Banking Company shall not hold shares
in any company, whether as:
• Pledgee
• Mortgagee
• Absolute Owner
of an amount exceeding 30% of:
• Paid-up share capital under reserves, whichever Is less.
• This condition does not apply in respect of shares of the
subsidiary held by the banking company.
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19. REGULATION OF LOANS & ADVANCES BY
RBI
Section 20: Any banking company shall not :
• Grant any loans or advances bon the security of its own shares
• Enter into any commitment for granting any loan or advance to
or on behalf of:
a) Any of its Directors
b) Any firm in which any of its directors is interested as partner,
manager, Employee or Guarantor
c) Any company, not being its subsidiary or a company registered
under sec 8 of Companies Act, 2013, or a government company,
of which or the subsidiary or holding of which any of the
Directors of the banking company is a Director, Manager,
Employee or Guarantor or in which he holds substantial interest.
d) Any individual in respect of whom any of its directors is a
Partner or Guarantor.
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20. NO REMISSION WITHOUT PRIOR
APPROVAL OF RBI
 Section 20A(1) : Except with the prior approval of RBI, a
banking company shall not remit in whole or in part any debt
due to it by:
• Any of its directors
• Any firm or company in which any of its directors is
interested as Director, partner, Managing Agent or
Guarantor.
• Any individual if any of its directors, is his Partner or
Guarantor.
 Section 20A(2) : Any remission of debt in contravention of
the aforesaid shall be void and of no effect.
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21. POWER OF RBI TO REGULATE
ADVANCES
Section 21: Where RBI is satisfied that it is necessary or expedient
in public interest or in the interest of depositors to do so, it may
determine the policy in relation to advances to be followed by
banking companies or any particular banking company, and such
company shall be bound to follow such policy. The directions can
be as follows:
• Purposes for which advances may not be made:
• Margins to be maintained in resect of secured advances.
• Maximum amount of advances or other financial accomodation
which, having regard to the paid-up capital, reserve and
deposits o banking company and other relevant consideration,
may be made by that banking company to any company, firm,
AOP or individual.
• The rate of interest and other terms & condition on which
advances or other financial accomodation may be made or
guarantees may be given.
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22. BANK CANNOT BE SUED FOR CHARGING
EXCESS INTEREST
Section 21A: A transaction between a banking company and
its debtor shall not be reopened by any court on the ground
that the rate of interest charged by the banking company in
respect of such transaction is excessive.
The provisions of this section have overriding effect over
Usurious Loans Act, 1918, or any other law relating to
indebtedness in force in any State.
Thus, court cannot take any action against the bank.
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23. REMOVAL OF MANAGERIAL
PERSONNEL BY RBI
Section 36AA: Whenever RBI is satisfied that it is necessary
to do so
 In public interest, or
 For preventing the affairs of a banking company
a) Being conducted in a manner detrimental to the interests
of the depositors, or
b) For securing the proper management of any banking
company
RBI may, for reasons to be recorded in writing, by order,
remove from office, any Chairman, Director, Chief Executive
Officer, or other officer or employee of the banking company,
after giving an opportunity of making representation, with
effect from such date as may be specified in the order.
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24. REMOVAL OF MANAGERIAL
PERSONNEL BY RBI
Bu if, in the option of RBI, any delay would be detrimental to
the interests of the company or its depositors, RBI may, at the
time of giving opportunity aforesaid or at any time thereafter,
by order direct that, pending the consideration of the
representation aforesaid, if any, the Chairman/CEO/Other
Officer or Employee, shall not, with effect from the date of such
order:
• Act as such Chairman/Director/CEO/Other Officer or
Employee
• In any way, where directly or indirectly, be concerned with,
or take part in the management of the banking company.
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25. APPEAL
Person aggrieved
by such order
Within 30 Days
from the date of
communication to
him of the order
Prefer an appeal to
CG, and the
decision of CG
shall be final.
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26. EFFECT OF REMOVAL
Ceases to hold position shall not
be concerned with, or take part
in the management for such
period not exceeding 5 years, as
may be specified in the order
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27. PENALTY FOR
CONTRAVENTION
Fine Rs.250 for each day
during which the contravention
continues.
Loss of Office Notwithstanding
anything contained in any law
or in any contract,
memorandum or articles of
association, the person shall
not be entitled to claim any
compensation for loss of
office.
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28. APPOINTMENT OF NEW PERSON
• The person so appointed shall hold office during the
pleasure of RBI and subject thereto for a period not
exceeding 3 years or such further periods not exceeding 3
years at a time as RBI may specify
• The person shall not incur any obligation or liability by
reason only of his being a Chairman/Director/CEO/Other
Office or Employee, or for anything done or omitted to be
done in good faith in the execution of duties of his office or
in relation thereto.
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29. POWER TO APPOINT
ADDITIONAL DIRECTOR
Section 36AB: RBI can appoint one or more additional
directors on BOD of a banking company whenever it forms an
opinion that in the interest of:
• Banking Policy, or
• Public Interest, or
• Banking Company, or
• Depositors.
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30. POWER TO APPOINT ADDITIONAL
DIRECTOR
The additional directors so appointed:
 Shall hold office the pleasure of RBI may specify:
 Shall not incur any obligation or liability by reason only of
his being a chairman/Director/CEO/other Officer or
Employee, or for anything done or omitted to be done in
good faith in the execution of duties of his office or in
relation thereto;
 Shall not be required to hold qualification shares in the
banking company.
Such additional directors shall not be considered for the
purpose of reckoning any proportion of the total number of
directors of the banking company
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31. POWER OF CG TO ACQUIRE
BANKING BUSINESS
Section 36AE: On the basis of report of RBI, if CG is satisfied
that a banking company:
 Failed to comply its directions > 1 occasion
 Managed in a manner which is detrimental to the interest of
depositors.
Option 1:
• CG, in consultation with RBI, may acquire undertaking of
such Co.. Including all its assets & liabilities.
• Thereupon, all assets & liabilities of acquired bank shall
stand transferred to CG.
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32. POWER OF CG TO ACQUIRE
BANKING BUSINESS
Option 2:
 If CG is satisfied that undertaking including all assets &
liabilities should vest in any other Co.., CG may such order.
 Transferee bank shall be deemed as transferee of acquired
bank, and all assets & liabilities of acquired bank shall be
deemed as of transferee bank.
 Any appeal against or by acquired bank shall by continued
by or against CG or Transferee ban k.
 CG/Transferee Bank shall compensate every shareholder.
 Compensation will be decided by CG (if takeover by CG) or
Transferee Bank, in consultation with RBI.
 If compensation not acceptable, such person may request
CG to refer the case to tribunal.
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