I want to know about collateral held by the banks. What if a borrower fails to repay loan and his collateral seized?
Disposal of asset within 7 years or (12 years if extended by RBI) by the bank.
What if banking company want to use that asset for business use?
Yes, it is allowed.
What if banking company use it for commercial purpose like earning rent?
No, it is not allowed.
How can I be sure that directors of the bank are professionals who are knowledgeable?
That’s why RBI has directed that at least 51% of the directors must be the ones having knowledge of:
1. Agriculture and Rural economy, small-scale industry and co-operation (At least 2).
2. Accounting, Banking, Finance etc.
I have heard of SLR and CRR. What are those?
1. Statutory Liquidity Ratio (SLR) – Minimum percentage of deposits banks have to keep in gold, investments and approved securities. Currently it is 23%.
2. Cash Reserve Ration (CRR) – Minimum percentage of cash to be deposited with RBI by the commercial banks. Currently it is 4%.
I am curious about Repo-Rate too. Expand a little bit?
Rate at which RBI lends money to commercial banks in the event of shortfall of funds. It is used to control inflation.
I read in economic times that there is a shortfall of 25 basis points in CRR/SLR. What are basis points?
Just percentage points. 25 basic points means 0.25%.
I am worried about dominance of commercial banks. Are there any limitations?
Yes, RBI has imposed some limitations(on):
1. Prohibiting advances for specific purpose.
2. Margin to be maintained.
3. Maximum amount of advances.
4. Maximum amount of guarantee.
5. Rate of interest and terms only on which advances can be given.
Who will sign the accounts of the bank?
Manager/Principal officer + 3 directors (or less if there are less than 3 directors).
Okay, List in short the functions of RBI?
1. Issue currency.
2. Formulate monetary policy.
3. Regulate and supervise financial system.
4. Act as a bank for commercial banks.
Those are the major functions. Are there any major powers too?
Yes, RBI has the power to:
1. Remove any chairman, director or any other officer/employee of banking company.
2. Appoint additional directors, who:
· Doesn’t require to hold qualification shares.
· Shall not incur any liability.
· Shall hold office for a maximum of 3 years.
· Shall not be counted in total number of directors.
I know that CG has the power to acquire a commercial bank after consultation with RBI if the bank fails to comply with the directions given to it. Tell me about the particulars of the same?
1. Cases against the bank will remain intact.
2. Compensation will be given to the shareholders.
CG decides compensation. What if a shareholder is not satisfied with the amount of compensation?
· Send in writing the request to re-determine the compensation.
· CG will then forward the matter to the tribunal if CG receives similar requests from at least 25% of shareholders holding at least 25% paid up capital.
· Final decision is binding on shareholders and a similar appeal cannot be made again.
I am planning to open a banking company and in my memorandum and articles I will write my own provisions. Can I do that?
No, Act overrides the memorandum and the articles of the company. Moreover, if any provision is against the act then it will become void.
Chiranjiv Kumar
Owner of fundspedia.com
CAclubindia
