Banking Regulation Act-1949

History of Banking Regulation Act.

Different types of banks, such as commercial
banks, cooperative banks, rural banks, and private sector
banks exist in India. The Reserve Bank of India (RBI) is
the governing body for regulating and supervising the
banks. Banking Regulation Act, 1949 (Act No.10-
Enactment date 10-03-1949) is an Act that provides a
framework for regulating the banks of India. The Act
came into force on 16th March 1949. This Act gives RBI
the power to control the behaviour of banks. This Act
was passed as Banking Companies Act, 1949. It did not
apply to Jammu and Kashmir until 1956.
But with the introduction of the Banking
Laws (Application To Co-operative Societies) Act, the
word Companies was omitted and the word Regulation
was added to the title of the Banking Regulation Act,
1949 in 1965 and applicable with effect from 01-03-1966
Total Section BR Act -56 Total Part-5

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Section 1-Short title, extent and commencement
(1) This Act may be called the Banking 1[Regulation] Act,
1949.
(2) It extends to the whole of India
(3) It shall come into force on such date as the Central
Government may, by notification in the Official Gazette,
appoint in this behalf. (Came into force on 16th March,
1949; see Notification No. F.4 (46)-FI/49, dated 10th
March, 1949)
Section 2-Application of other laws not barred
Section 3- Act not to apply to certain cooperative
societies
Notwithstanding anything contained in the National
Bank for Agriculture and Rural Development Act, 1981
(61 of 1981), this Act shall not apply to—
(a) a primary agricultural credit society; or

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(b) a co-operative society whose primary object and
principal business is providing of long-term finance for
agricultural development,
if such society does not use as part of its name, or in
connection with its business, the words “bank”,
“banker” or “banking” and does not act as drawee of
cheques.]
Section 4-Power to Suspend operation of the Act
The central government, if on a representation made by
the reserve bank in this behalf, is satisfied that it is
expedient to do so may by notification in the official
gazette suspend for such period not exceeding 60 days,
as may be specified in the notification, the operation of
all or any of the provisions of this act, either generally or
in relation to any specified banking company.
Section 5-Interpretation
(a) "approved securities" means the securities issued by
the Central Government or any State Government or
such other securities as may be specified by the Reserve
Bank from time to time;]
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(b) "banking" means the accepting, for the purpose of
lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and
withdrawal by cheque, draft, order or otherwise;
(c)"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 carries on any trade and which
accepts deposits of money from the 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;
(ca) "banking policy" means any policy which is specified
from time to time by the Reserve Bank in the interest of
the banking system or in the interest of monetary
stability or sound economic growth, having due regard to
the interests of the depositors, the volume of deposits
and other resources of the bank and the need for

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equitable allocation and the efficient use of these
deposits and resources;
(cc) "branch" or "branch office" , in relation to a banking
company, means any branch or branch office, whether
called a pay office or sub-pay office or by any other
name, at which deposits are received, cheques cashed or
moneys lent, and for the purposes of section 35 includes
any place of business where any other form of business
referred to in sub-section(1) of section 6 is transacted;
(d) "company" means any company as defined in section
3 of the Companies Act, 1956 (1 of 1956); and includes a
foreign company within the meaning of section 591 of
that Act;)
(da) "corresponding new bank" means a corresponding
new bank constituted under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings)
Act, 1970 (5 of 1970); or under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings)
Act, 1980 (40 of 1980)

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(f) "demand liabilities" means liabilities which must be
met on demand, and "time liabilities" means liabilities
which are not demand liabilities;
(ff) "Deposit Insurance Corporation" means the Deposit
Insurance Corporation established under section 3 of the
Deposit Insurance Corporation Act, 1961 (47 of 1961)
(ffb) "Exim Bank" means the Export-Import Bank of India
established under section 3 of the Export-Import India
Act, 1981 (28 of 1981)
(ffc)"Reconstruction Bank" means the Industrial
Reconstruction Bank of India established under section 3
of the Industrial Reconstruction Bank of India Act, 1984
(62 of 1984)
(ffd) "National Housing Bank" means the National
Housing Bank established under section 3 of the National
Housing Bank Act, 1987
(g) "gold" includes gold in the form of coin, whether legal
tender or not, or in the form of bullion or ingot, whether
refined or not;

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(gg) "managing agent" includes. –
(i) Secretaries and Treasurers;
(ii) Where the managing agent is a company, and
director of such company, and any member thereof who
holds substantial interest in such company;
(iii) Where the managing agent is a firm, any partner of
such firm;]
(h)"managing director", in relation to a banking
company, means a director who, by virtue of an
agreement with the banking company or of a resolution
passed by the banking company in general meeting or by
its Board of directors or, by virtue of its memorandum or
articles of association, is entrusted with the
management of the whole, or substantially the whole of
the affairs of the company, and includes a director
occupying the position of a managing director, by
whatever name called:

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(ha) "National Bank" means the National Bank for
Agriculture and Rural Development established under
section 3 of the National Bank for Agriculture and Rural
Development Act, 1981;]
(hb) "National Bank for Financing Infrastructure and
Development" means the Institution established under
Section 3 of the National Bank for Financing
Infrastructure and Development Act, 2021]
(hc) "Other development financial institution" means a
development financial institution licensed under Section
29 of the National Bank for Financing Infrastructure and
Development Act, 2021]
(j) "Prescribed" means prescribed by rules made under
this Act;
(ja) "regional rural bank" means a regional rural bank
established under section 3 of the Regional Rural Banks
Act, 1976 (21 of 1976);
(l) "Reserve Bank" means the Reserve Bank of India
constituted under section 3 of the Reserve Bank of India
Act, 1934 (2 of 1934);]
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(n) "secured loan or advance" means a loan or advance
made on the security of assets the market value of which
is not at any time less than the amount of such loan or
advance; and "unsecured loan or advance" means a loan
or advance not so secured;
(ni) "Small Industries Bank" means the Small Industries
Development Bank of India established under section 3
of the Small Industries Development Bank of India, 1989;
(na) "small-scale industrial concern" means an industrial
concern in which the investment in plant and machinery
is not in excess of seven and a half lakhs of rupees or
such higher amount, not exceeding twenty lakhs of
rupees, as the Central Government may, by notification
in the Official Gazette, specify in this behalf, having
regard to the trends in industrial development and other
relevant factors;
(nb) "Sponsor Bank" has the meaning assigned to it in
the Regional Rural Banks Act, 1976 (21 of 1976);

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(nc) "State Bank of India" means the State Bank of India
constituted under section 3 of the State Bank of India
Act, 1955 (23of 1955);
(nd) "Subsidiary bank" has the meaning assigned to it in
the State Bank of India (Subsidiary Banks) Act, 1959;
[(ne)] "substantial interest".- (i) in relation to a company,
means the holding of a beneficial interest by an
individual or his spouse or minor child, whether singly or
taken together, in the shares thereof, the amount paid
up on which exceeds five lakhs of rupees or ten percent
of the paid-up capital of the company, whichever is less;
Section 5A-The Act to override Memorandum,
Articles
Save as otherwise expressly provided in this Act. –
(a) the provisions of this Act shall have effect
notwithstanding anything to the contrary contained in
the memorandum or articles of a banking company, or in
any agreement executed by it, or in any resolution
passed by the banking company in general meeting or by
its Board of Directors, whether the same be registered,
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executed or passed, as the case maybe, before or after
the commencement of the Banking Companies
(Amendment) Act,1959 (33 of 1959); and
Section 6-Forms of business in which banking
companies may engage (Business permitted to a
banking company)
(1) In addition to the business of banking, a banking
company may engage in any one or more of the
following forms of business, namely:-
(a) the borrowing, raising, or taking up of money; the
lending or advancing of money either upon or without
security; the drawing, making, accepting, discounting,
buying, selling, collecting and dealing in bills of
exchange, hoondees, promissory notes, coupons, drafts,
bills of lading, railway receipts, warrants, debentures,
certificates, scrips and other instruments and securities
whether transferable or negotiable or not; the granting
and issuing of letters of credit, traveller's cheques and
circular notes; the buying, selling and dealing in bullion
and specie; the buying and selling of foreign exchange

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including foreign bank notes; the acquiring, holding,
issuing on commission, underwriting and dealing in
stock, funds, shares, debentures, debenture stock,
bonds, obligations, securities and investments of all
kinds;
Section 7-Name of banking company must include
the word ‘bank’,Banker’ or Banking:
A banking company must use these words as part of its
name. No other company can use these words as part of
its name.
Section 8-Business Prohibited for a banking
company
No banking company shall directly or indirectly deal in
buying or selling of goods or bartering of goods or
engage in any trade or buy, sell or barter goods for
others.

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Section 9-Disposal of non banking asset (Restriction
on holding property for more than 7 years)
A banking company is prohibited to keep any property
(Other than for its use), acquired by it for more than 7
years. However, the Reserve Bank may extend this
period for 5 Years.
Section 10 - Prohibition of employment of managing
agents and restrictions on certain forms of
employment.
A banking company cannot employ or continue to
employ a managing agent and the following persons to
manage its affairs.
1.An insolvent or a person who has been declared
insolvent at any time
2.A person who has suspended payment to his creditor
3.A person who has been sentenced for moral turpitude
4.A person who is paid remuneration by way of
commission, wholly or partly

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Section 10A (2A): No director of a banking company
to hold office for more than 8 years.
No director of a banking company, other than the
chairman or managing director ,shall hold office
continuously for a period exceeding eight years.
Section 10A (2A) (ii): Removed chairman or
Managing director cannot become director for four
years.
A chairman or managing director of a bank on removal
from his office shall also cease to be director. He shall
also not be eligible to become director in any manner for
a period of four years from such removal.
Section 10A (3) Reserve Banks power to order
reconstitution Board.
If the reserve bank is satisfied that the board of directors
of a banking company has not been constituted in
accordance with the provisions of the Act it may, after
giving reasonable opportunity to the bank, order
reconstitution of the board.

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Section 10B Banking Companies to be managed by
whole-time chairman
Every existing banking company on the commencement
of the banking laws (Amendment) Act, 1968,or on
coming into existence later on, shall appoint a whole
time chairman out of its directors
Section 10BB Power of Reserve Bank to appoint
[Chairman of the Board of directors appointed on a
whole-time basis or a managing director] of a
banking company.
Term of office
The chairman shall hold office for a term not exceeding
five years, However he shall be eligible for re-
appointment or re-election
Qualifications of chairman (Sec.10A(4)
Every chairman of the board of directors of a banking
company shall have special knowledge and practical
experience of

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(i) Working of a banking company or of the state bank of
India or a financial institutions
(ii) Financial, economic or business administration
Disqualifications of chairman (Sec.10B(4)
A person shall be disqualified to be appointed as a
chairman if he:
(i) is a director of another company
(ii) is a partner of a firm carrying on trade, business or
industry
(iii) has substantial interest in any other company or
firms
(iv) is a director, manager, managing agent, partner or
proprietor of any trading, commercial or industrial
concern
(v) is engaged in any other business

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Resignation by chairman (Sec.10B(5)
Chairman can resign from his office by writing under his
hand. The resignation should be addressed to the
banking company.
Section 10C-Chairman and directors appointed by
the reserve bank not required to hold qualification
shares.
These person are not required to hold any qualification
shares
Section 11- - Requirement as to minimum paid-up
capital and reserves
(A) In the case of an Indian Banking company minimum
paid-up capital and reserves shall be:
1.If the bank has place of business in more than one
state, excluding Mumbai and Kolkata-Rs.5 Lakh
2.If the bank has place of business in more than one
state, including Mumbai and Kolkata-Rs.10 Lakh

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3.If the places of business are situated only in one state,
excluding Mumbai and Kolkata
(i) Principal place of business –Rs.1 Lakh
(ii) For every place of business situated in the same state
in which the principal place of business is situated-
Rs.10000
(B) In the case of a company incorporated outside in
India:
1.If the bank has place of business located in any part of
India, Excluding Mumbai or Kolkata-Rs.15 Lakh
2.If the place of business is located in Mumbai or Kolkata
or Both Rs.20 Lakh

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Section 12- - Regulation of paid-up capital,
subscribed capital and authorised capital and
voting rights of share holders
(1) No banking company shall carry on business in India,
unless it satisfies the following conditions, namely:-
(i) that the subscribed capital of the company is not less
than one-half of the authorised capital, and the paid-up
capital is not less than one-half of the subscribed capital
and that, if the capital is increased, it complies with the
conditions prescribed in this clause within such period
not exceeding two years as the Reserve Bank may allow;
Section 13-Restriction on commission, brokerage,
discount... etc on sale of shares.
A banking company is not permitted to pay more than
2½ % of the paid value of shares by way of commission,
brokerage , discount...etc

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Section 14-Restriction on creation of charge on
capital.
A banking company is prohibited from creating a floating
charge on its capital without the written permission of
the Reserve Bank of India.
Section 15-Restriction on Payment of Dividend.
A company cannot pay any dividend unless it has written
off its capital expenditure (Preliminary expenses,
commission...etc )
Section 16-Restriction on Common directors.
A banking company is prohibited from appointing a
person as a director who is already director in another
company.
Section 17-Reserve Fund.
An Indian company has to transfer 25% of its net profit
to its reserve fund before declaring dividend in any year.

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Section 18-Cash Reserves.
Such cash reserve may be kept by the company in
current account with Reserve bank, state Bank or any
other bank approved by the central government.
Section 19-Restriction on business of subsidiary
A Banking company cannot form its subsidiary except for
the following purposes:
(i) To undertake permissible business under section 6
(ii) To undertake banking business outside India with the
prior permission of the Reserve bank of India
Section 20-Restriction on loans and advances
No banking company shall,- (a) grant any loans or
advances on the security of its own shares.

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Section 20A-Restriction on remission of loan
A banking company shall not, except with the prior
approval of the Reserve Bank, remit in whole or in part
any debt due to it by-
(a) any of its directors, or
(b) any firm or company in which any of its directors is
interested as director, partner, managing agent or
guarantor, or
(c) any individual if any of its directors is his partner or
guarantor.
(2) Any remission made in contravention of the
provisions of sub-section (1) shall be void and of no
effect.
Section 21 - Power of Reserve Bank to control
advances by banking companies

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Section 22 – Licensing of banking companies &
Cancellation of Licence
Every banking company carrying on banking business in
India is required to hold a licence from the Reserve Bank.
The Reserve Bank is empowered to cancel the licence.
Section 23 – Permission for Opening branches
Every banking company is required to obtain prior
permission of the Reserve bank to open a new place of
business in India or to change the location of an existing
place of business outside a city, town or village in India.
Section 24 – Maintenance of a percentage of assets
(Maintenance of Statutory Liquidity Ratio)
Every bank must have a particular portion of their Net
Demand and Time Liabilities (NDTL) in the form of cash,
gold, or other liquid assets by the end of the day. The
ratio of these liquid assets to the demand and time
liabilities is called the Statutory Liquidity Ratio (SLR). The
Reserve Bank of India (RBI) has the authority to increase
this ratio by up to 40%.

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Section 25 – Maintenance of Assets in India
The assets in India of every banking company at the
close of the business on the last Friday of every quarter
shall not be less than 75% of its demand and time
liabilities in India.
Section 26 – Return of unclaimed deposits
Every banking company shall, within thirty days
after the close of each calendar year, submit a return in
the prescribed form and manner to the Reserve Bank as
at the end of such calendar year of all accounts [in India]
which have not been operated upon for ten years.
Section 26A – Establishment of Depositors
education and Awareness fund
(1) The Reserve Bank shall establish a Fund to be called
the "Depositor Education and Awareness Fund"
(2) There shall be credited to the Fund the amount to
the credit of any account in India with a banking
company which has not been operated upon for a period
of ten years or any deposit or any amount remaining

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unclaimed for more than ten years, within a period of
three months from the expiry of the said period of ten
years:
Section 27 – Monthly Returns
Every banking company shall submit to the Reserve bank
a return in the prescribed form and manner.
Section 28 – Power to publish information
The Reserve Bank or the National Bank, or both, if they
consider it in the public interest so to do, may publish
Section 29 – Prepration of Balance sheet and profit
and loss account.
The balance sheet and profit and loss account shall be
prepared in the prescribed form as given in schedule III.
The balance sheet and profit and loss account shall be
signed by at least three directors, where there are more
than 3 directors and by all the directors if there are less
than 3 directors

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Section 30 – Audit of Accounts
The balance sheet and profit and loss account of a bank
prepared in accordance with section 29 should be
audited by a person duly qualified under any law for the
time being in force to be an auditor of companies.
Section 30 – Power to order special audit
The Reserve bank is also empowered to order special
audit if it is satisfied that it is necessary to do so in public
interest or in the interest of the company or the
depositor.
Section 31 – Submission of returns
The audited balance sheet and profit and loss account
along with the auditor’s report shall be published in the
prescribed manner. Three such copies shall be filed, as
returns with the Reserve bank within 3 Months from the
end of the period to which they relate.

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Section 32 – Copies of balance sheet and accounts
to be sent to registrar
Section 33 – Display of audited balance-sheet by
companies incorporated outside India
Section 34 – Accounting provisions of this Act not
retrospective
Section 35 – Reserve Banks power of inspection
The Reserve bank is empowered either at its own
initiative or at the instance of the central government, to
inspect any banking company and its books of account.
Financial Inspection : It is carried out to appraise assets
and liabilities of the banks and the methods of
operation.
Annual Inspection :Annual Inspection, as its name
suggests is done annually.

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Section 35A – Powers of Reserve bank to issue
directions
The Reserve Bank is empowered to issue
direction to a banking company in the public interest or
in the interest of banking policy to prevent the affairs of
the banking company being conducted in a manner
detrimental to the interests of the depositor or in a
manner prejudicial to the interest of banking company.
Section 36 – Further powers and functions of
Reserve Banks
The Reserve Bank can caution or prohibit a banking
company against entering into any particular
transaction. The reserve bank can also give general
advice to any banking company.

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Section 36AA – Power of reserve bank to remove
managerial personnel.
The Reserve Bank is empowered in public interest
or to check the bank from managing the affairs in a
manner prejudicial to the depositor’s interest to remove
chairman, director, chief executive officer or other
officer or employee of bank
Section 36AB – Power of reserve bank to
appointment additional Directors
The Reserve Bank is empowered to appoint additional
directors, in case it is necessary in public interest or in
the interest of the banking company or its depositors.
Section 37 – Suspension of business of a banking
company.
The High court on an application of the banking company
is empowered to suspend the business of banking
company, if the company is temporarily unable to meet
its liabilities.

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Section 38 – Winding up of abanking company
The High court can order winding up of a banking
company in the following cases
If the banking company is unable to pay its debts
If an application for winding up has been made by the
Reserve bank under section 37 or 38
Section 38A-Court Liquidator
(1) There shall be attached to every High Court a Court
liquidator to be appointed by the Central Government
for the purpose of conducting all proceedings for the
winding up of banking companies and performing such
other duties in reference thereto as the High Court may
impose
Section 39-Reserve bank to be official liquidator
Section 40-Stay of proceedings
Section 41 - Preliminary report by official liquidator
Section 42 - Power to dispense with meetings of
creditors, etc
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Section 44 - Powers of High Court in voluntary
winding up
(1) Notwithstanding anything to the contrary contained
in Section 484 of the Companies Act, 1956 (1of 1956), no
banking company may be voluntarily wound up unless
the Reserve Bank certifies in writing that the company is
able to pay in full all its debts to its creditors as they
accrue.
Section 44A - Procedure for amalgamation of
banking companies
(1) Notwithstanding anything contained in any law for
the time being in force, no banking company shall be
amalgamated with another banking company, unless a
scheme containing the terms of such amalgamation has
been placed in draft before the shareholders of each of
the banking companies concerned separately, and
approved by a resolution passed by a majority in number
representing two-thirds in value of the shareholders of
each of the said companies, present either in person or
by proxy at a meeting called for the purpose.
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Section 45 - Power of Reserve Bank to apply to
Central Government for suspension of business by a
banking company and to prepare scheme of
reconstitution of amalgamation
Section 46 – Penalties
Section 47 - Cognizance of offences
Section 48 - Application of fines
Section 49 - Special provisions for private banking
companies
Section 52 - Power of Central Government to make
rules
(1) The Central Government may, after consultation with
the Reserve Bank, make rules* to provide for all matters
for which provision is necessary or expedient for the
purpose of giving effect to the provisions of this Act and
all such rules shall be published in the Official Gazette.
Section 56. Act to apply to co-operative societies subject
to modifications.

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