This document provides an overview of various legal and regulatory aspects related to banking and non-banking companies in India. It discusses definitions of banking, the legal framework for bank regulation including the Reserve Bank of India Act and the Banking Regulation Act. It also summarizes Basel II and III capital adequacy frameworks, guidelines on licensing of payment banks, the Payment and Settlement Systems Act 2007, and various principles related to prevention of money laundering and debt recovery.

1. 
LEGAL & REGULATORY
ASPECTS OF BANKING &
NON BANKING COMPANIES

2. 
Group Members
Harsh Raval - (130)
Saurabh Salot - (137)
Toshish Sarode - (140)
Foram Sarvaiya - (141)
Anusha Shetty - (156)
Tanmay Talvelkar -(167)

3. 
Banking Defination

4. Legal Framework of Regulation of
Banks
Reserve Bank of India
Act, 1934
Powers of Government
Banking Regulation Act,
1949
RBI as Central Bank &
Regulator

5. 
Control Over Organization of
Banking Business
Licensing of Banking
Companies
Branch Licensing Capital Structure

6. 

7. 
Basel II Summary

8. 
 Improve the banking sector’s ability to absorb shocks
arising from financial and economic stress
 Improve Risk Management and governance
 Strengthen bank’s transparency and disclosures
BASEL III

9. 
 Capital Conservation Buffer
 Counter-Cyclic Buffer
 Minimum capital requirements
 Leverage Ratio
 Liquidity Ratios
FEATURES

10. 
CAPITAL BASEL II (% of
RWAs)
BASEL III
A Minimum Total Capital 8.0 8.0
B Minimum Tier 1 Capital 4.0 6.0
C Minimum Common Equity 2.0 4.5
D Minimum Tier 2 Capital 4.0 2.0
E Capital Conservation Buffer - 2.5
F= (C+E) Minimum CET1 + CCB 2.0 7.0
G=
(A+E)
Minimum total Capital + CCB 8.0 10.5
BASEL II v/s BASEL III

11. 
 BASEL III implemented in India from April 2013
 Fully implemented by March 2019
 CET 1 must be 5.5% of RWAs (BASEL- 4.5%)
 Capital Conservation buffer- 2.5% of RWAs
 Minimum Tier 1 Capital- 7%
Guidelines of RBI

12. 
 Capital (SBI needs 2,30,000 crore to meet BASEL III
Requirement till 2018)
 Growth barrier
 Profitability
 Implementing counter cyclic buffer
 Risk Management
 Systematic Risk
Challenges for Banks

13. 
Country Basel III Implementation
Japan, Singapore, Switzerland China
Brazil, Australia, Canada
Completed
European Union & United States Technical Work Completed
Hong Kong, Mexico, India, South
Africa
Underway
Saudi Arabia, Russia, Argentina,
Turkey , Korea
Planned
Global Scenario

14. 
 Small banks have not implemented Basel 2
 China’s small commercial banks asked to boost capital for
first time
 CBRC is pushing all of China's commercial banks to fall in
line this time
 The majority of the personnel in the small banks lack
knowledge and expertise of assessing risks
Chinese Case

15. 

16. 
 Cheques, Drafts
 Accounts for nearly 60% of the volume of total non-cash
transactions
 Magnetic Ink Character Recognition (MICR) technology
for speeding up and bringing in efficiency in processing of
cheques
 Recent developments
 cheque truncation system
Paper Based Systems

17. 
Electronic Clearing Service
ELECTRONIC
CLEARING SERVICE
(CREDIT)
ELECTRONIC
CLERING SERVICE
(DEBIT)

18. 
 Introduced in November 2005
 Enables customers to transfer funds easily and
securely on a one-to-one basis
 RBI acts as a service provider
 Operates on DNS basis and makes settlements in
batches
 Not restricted to any geographical area
NEFT

19. 
NEFT Working
Fill NEFT
application form
(Name, acc no etc)
Remitting branch
prepares SFMS &
sends it to service
center
Bank credits it
to customer
accounts
NCC sends it to
receiving banks
Service center
forwards it to
NCC
Example: Ram makes Payment to Sham after 7 pm using
NEFT via Net Banking

20. 
 Introduced in 2004
 Transfer of money takes place on a "real time" and on
"gross" basis
 Settles all inter-bank payments and customer
transactions above 2 lakh.
 Typically used for high-value transactions that require
and receive immediate clearing
RTGS
Example: Ajay Makes payment to Vijay but Vijay’s
Account is frozen. Payment not completed

21. 

22. 
Number of transactions (NEFT-
2015)
Amount (Rs)
106 Million 7173.09 Billion
Statistics
Number of Transactions (RTGS) Amount (Rs)
96,72,739 87421.48 Billion
Source: RBI

23. 
 It is an instant real-time inter-bank electronic funds
transfer system of India
 Offers an inter bank electronic fund transfer through
mobile phones
 Available 24/7 throughout the year including bank
holidays
 It is managed by the National Payments Corporation of
India (NPCI)
 Maximum limit is 2,00,000 per day

24. 
Others

25. 
 Introduced in March 2012
 It is an Indian domestic card scheme conceived and
launched by the NPCI
 It was created to have a domestic, open loop, and
multilateral system of payments in India
 RuPay facilitates electronic payment at all Indian
banks and financial institutions
 Competes with MasterCard and Visa in India
Rupay

26. 
Payment Gateways

27. 
Governing Bodies
National
Clearing
Cell

28. 
 Lay down policies relating to the regulation and supervision
of all types of payment and settlement systems
 Set standards for existing and future systems
 Approve criteria for authorization of payment and settlement
systems
 Determine criteria for membership to these systems,
including continuation, termination and rejection of
membership.
 creating necessary administrative structure within the
existing rules
Board for Payment & Settlement

29. 
 Objectives
 Eligible promoters
 Scope of activities
 Deployment of funds
 Capital requirement
 Promoters Contribution
Guidelines for Licensing of
Payment Banks

30. 
Payment Banks
Aditya Birla Nuvo
Airtel M Commerce Services
National Security Depository
Reliance Industries

31. Payment &
Settlement Act 2007

32. 
 Not allowed to operate without authorization
 Need RBI permission
Example: Citrus Payment Solution Pvt Ltd
Application For Authorization
 Any person desirous of carrying on a payment system
may apply to the Reserve Bank
 An application shall be made and shall be accompanied by
fees
Authorization for service
providers

33. 
Application Procedure
Send An application for Authorization to RBI
Inquiry by RBI
Issue or Refusal of Application
Appeal to central Government

34. 
Revocation of Application
If a system provider,—
 Contravenes any provisions of this Act
 Does Not comply with the regulations
 Fails to comply with the ordres of designated
authority
 Operates the payment system contrary to the
conditions subject to which the authorization was
issued
Example: Kaizen Automation Private Limited

35. 
 Power to enter and inspect
 Access to information
 Confidentiality of information
 Powers to carry out audit & inspection
 Power to issue fines
Powers of RBI

36. 
 Disclose all terms & conditions to customers
 Maintain standards determined by act
 Confidentiality of documents
 The payment obligations and settlement
instructions shall be determined in accordance
with the gross or netting procedure
 A settlement effected under such procedure shall
be final and irrevocable
Duties of system provider

37. 
 System provider should create a panel
 When disputes arises between system participants, it
should be referred to panel
 Participants and system provider- not satisfied by
panel- refer to RBI
 Disputes between Reserve Bank & system provider-
Central Government
Settlement of
Disputes

38.  Failure to comply with terms of authorization-
Imprisonment up to 10 years or fine 1 crore
 Fake documents in application- Up to 3years or fine
up to 50 lakhs
 Failure to produce statements, returns on demand by
inspecting officer- Fine 10 lakhs
 Disclosure of confidential information- Fine of 5
lakhs or twice the amount of damages incurred
 Contravening the provisions of this act- fine up to 10
Lakhs
Offences & Penalties

39. 
 Protection of Funds of Customer
 Settlement and netting in relation to
central counterparties
Amendment -2015

40. 
Online Credit Card fraud

41. 
 ASSET CLASSIFICATION
 Substandard Assets
 Doubtful Assets
 Loss Assets
 Income Recognition
 Income Recognition Policy
 Reversal of income
 Interest Application
Prudential Norms

42. 
Asset
Classification
Period as NPA
Earlier
provisioning (%)
Revised accelerated
provisioning (%)
Sub- standard
(secured)
Up to 6 months 15 No change
6 months to 1 year 15 25
Sub-standard
(unsecured ab-
initio)
Up to 6 months 25 (other than
infrastructure
loans) 25
20 (infrastructure
loans)
6 months to 1 year 25 (other than
infrastructure
loans) 40
20 (infrastructure
loans)
Doubtful I 2nd year 25 (secured portion)40 (secured portion)
100 (unsecured
portion)
100 (unsecured
portion)
Doubtful II 3rd & 4th year 40 (secured portion)100 for both secured
and unsecured
portions
100 (unsecured
portion)
Doubtful III 5th year onwards 100 100
Provisioning Norms 2015

43. 
Banking Ombudsman
Scheme
It enables a forum to bank customers for resolution of complaints
relating to certain services rendered by banks.

44. 
Banking Ombudsman
Scheme
 Grounds of complaints
 Procedure for filing the complaint
 After receiving the complaint
 Rejection of complaint

46. 
 with effect from July 1, 2005
 extend to whole of India except J&K
 PMLA 2002 forms the core of the legal
framework put in place by India to combat
money laundering
 imposes obligation on banking companies,
financial institutions and intermediaries
PREVENTION OF MONEY
LAUNDERING ACT,2002

47. 
 whosoever directly or indirectly attempts to indulge
or knowingly assists or knowingly is a party or is
actually involved in any process or activity
connected with the proceeds of crime and projecting
it as untainted property shall be guilty of offence of
money laundering
What is Money Laundering?

48. 
 Maintain a record of all transactions
 Furnish information of the transactions to the director
within the prescribed time
 Verify and maintain records of the identity of all its
clients
Obligation Of Banking Companies,
Financial Institute And Intermediaries

49. 
 Composition of Tribunal
 Qualifications for appointment as Presiding
Officer
 Term of office
 Establishment of Appellate Tribunal
 Qualifications for appointment as Chairperson of
the Appellate Tribunal
 Deposit of amount of debt due, on filing appeal
DEBT RECOVERY
TRIBUNAL

50. 
Modes of Recovery
Validity of Certificate
Other modes of
Recovery
Transfer of pending cases Electronic Form

51. 
THE LEGAL SERVICES AUTHORITIES
ACT, 1987: LOK ADALATS
Organisation
Cases
AwardJurisdiction
Permanent
Lok Adalat

52. REGULATION OF SECURITISATION AND
RECONSTRUCTION OF FINANCIALASSETS OF BANKS
AND
FINANCIAL INSTITUTIONS

53. 
 The debt is secured
 The debt has been classified as an NPA by the banks
 The outstanding dues are
>1 lakh and
>20% of the principal loan amount and interest
 The security is not an Agricultural land.
Pre-conditions

54. 
Registration of Securitisation Companies or
Reconstruction Companies
BASIC
• Certificate of registration
• Capital
FUNCTION
• Acquisition of rights or interest in financial
assets.
• Transfer of pending applications
• Issue of security

55. 
 Take over
 Sale or lease
 Rescheduling of payment
 Enforcement of security interest Act
 Settlement of dues
 Possession of secured assets
Measures for assets
reconstruction

56. 
Other functions
AGENT
MANAGER
RECEIVER

57. 
ENFORCEMENT OF
SECURITY INTEREST
• NO intervention of any Court
• If borrower defaults account = NPA
SECURED
CREDITOR
BORROWER
NOTICE
Discharge in 60 days
OR
Make representation

58. 
Management of the company
Central Registry
Offences and Penalties
 Rs 5000 everyday
 Rs 5 lakh and Rs 10000 each day
 1 year imprisonment or fine or both

59. 
 The borrowers can at any time before the sale is
concluded, remit the dues and avoid losing the security
 Appeal in DRT and DRAT
Rights Of Borrowers
Signals Appearls Pvt Ltd v/s Canara bank (2010)

60. 

61. 

62. 
Difference between Bank &
NBFC

63. 

64. 
NBFCs are classified as
Asset finance company Investment Company Loan company

65. 
Formation Procedure
Obtain checklist of requirements from RBI website
Fill up prescribed form available on RBI website Fill
Fill up the e‐form provided in excel format
Get the required certifications of the statutory auditors/chartered
accountants
Submit softcopy on RBI website before submission of the hard copy.
Submit the hardcopy application in duplicate to regional office of RBI

66. 
must commence
within 6 months
from the date of
CoR
No change in control
prior to commence-
ment of its business
Commencement of Business
If not commenced in
6 months, CoR will
stand withdrawn

67. 
Framework Of NBFCs

68. 
NBFCs taking Public
Deposits
Net Owned Funds Rs 2 crore
Capital Adequacy Ratio Minimum of 15%
Nonperforming assets Need to make provisions
against non performing
assets
Credit Rating Minimum investment grade
or other specified credit
rating
Period of Public Deposit Between 1 year and 5 years
Interest Rate on Deposits Interest rate ceiling specified
(now 12.5% per annum)
Transfer to Reserve Fund 20% of profits
Investment in Approved Securities Minimum 10% of liquid
asset in approved securities
and 5% in unencumbered
term deposits with any
scheduled commercial bank
Key Prudential Norms

69. Acceptance of deposit Rate of Interest &
Period
Prohi. from accepting
demand deposit Deposit from NRI
Nomination Facility
Ceiling on acceptance
of public deposit

70. 
 No NBFC having Net Owned Fund > 2 Cr. shall
accept public deposit unless it has obtained
minimum investment grade
Credit Rating

71. 
 Downgrading of Rating
 Default by NBFC
 Role of Official Liquidators

72. 
Min period
of 12 months
and max
period of 60
months
cannot offer
interest rates
higher than
prescribed
by RBI
cannot offer
gifts/incent
ives to the
depositors
repayment
of deposits
by NBFCs is
not
guaranteed
by RBI
Features of
NBFC
regulations

73. 
 cannot grant any loan against a public deposit or
make premature repayment of a public deposit
within a period of three months (lock-in period)
from the date of its acceptance
 in the event of death of a depositor
Pre- payment of public
deposits

74. 
 74% FDI is allowed from all sources on the automatic
route
 Minimum Capitalisation norms for fund based NBFCs
 for FDI upto 51%, US $ 0.5 million to be brought in upfront
 If the FDI is above 51 % and upto 75 %, US $ 5 million to be
brought upfront
 If the FDI is above75 % and upto 100 %, US $ 50 million out
of which $ 7.5 million to be brought in upfront and the
balance in 24 months
FDI In NBFCs

75. Merchant banking Credit Reference Agencies
Underwriting Credit rating Agencies
Portfolio Management Services Leasing & Finance
Investment Advisory Services Housing Finance
Financial Consultancy Foreign Exchange Brokering
Stock Broking Credit card business
Asset Management Money changing Business
Venture Capital Micro Credit
Factoring Rural Credit
Custodial Services
FDI investments allowed in the following 19
NBFC activities

76. 
The Reserve Bank of India (RBI) has suspended the licences
of seven non-banking finance companies (NBFC)
 Religare Finance
 Eden Trade & Commerce
 Artisans Micro Finance
 Nott Investments
 RCS Parivar Finance
 Swetasree Finance
 Dewra Stocks & Securities
RBI Cancels license

77. 
 Key features
 Eligible Promoters
 ‘Fit and Proper’
 Corporate structure
 Minimum capital requirement
 Foreign shareholding in the bank
 Business plan for the bank
RBI releases “Draft Guidelines for ‘on tap’
licensing of Universal Banks in the Private
Sector”

78. 
Application procedure
The licensing window will be open on-tap, and the applications could be
submitted to the Reserve Bank
) The applications will be referred to a Standing External Advisory Committee
The Committee will submit its recommendations to the RBI
The decision for setting up of a bank will be taken by the Reserve Bank.
The validity will be 18 months from the date of granting
The Reserve Bank’s decision in this regard will be final
The names of applicants that are found suitable for approval will be placed on
the RBI’s website