The banking regulation act 1949 extends to whole of India. Other acts are used as auxilliary to this act e.g. Companies Act 1956( defining company) , negotiable instrument act defining public holiday). The act came into effect on 16 march 1949.
1. Banking:- Banking means accepting the deposits of money from public, for the purpose of lending and investing and repayable on demand or otherwise; and such money can be withdrawn by cheque , draft ,order or otherwise.
2. Banking companies:- A company which transacts the business of banking in India. And such company fulfils the conditions of being a company as given under companies act 1956.
Business allowed for a banking company (Section 6)
a. Borrowing, lending of money with/ without security, issuing travellers’ cheque, deposits vaults, buying and selling foreign exchange notes, collecting & transmitting of money and securities, buying bonds, scrips and other securities on behalf of customers.
b. Carrying on and transacting every kind of guarantee and indemnity business
c. Managing, selling and realizing any property which comes in possession of bank in process of settlements of claims.
d. Undertaking and executing of trusts
e. Other works which are incidental or advancements of the main purpose of the company.
f. Any other form of business defined by the Central govt in its notification.
Prohibition on trading (Section 8)
A banking company can’t enter directly or indirectly deals in buying or selling or barter (exchange) of goods.
Disposal of Non Banking assets (Section 9)
1. Banks can’t hold any property for more than 7 years for the purpose of settlements of the debts or obligations.
2. Such time limit can be increased by RBI for another 5 years, if it thinks fit .
Reserve fund (Section 17)
1. Every banking company must create a reserve fund out of the Earning after interest and tax.
2. Such reserve amount should be atleast 20% of such profits.
3. Exemption can be given by CG only if the aggregate amount of reserve fund and securities premium > paid up capital of the company.
Cash reserve (Section 18)
1. Atleast 3 % of total demand and time liabilities should be kept as cash reserve or should be secured in current account with RBI. Liabilities won’t include monies received from RBI/Development bank/ EXIM bank or any such other bank. Such amount should be kept/deposited on last Friday of every second fortnight of every month.
2. And the return should be submitted before 20th day of every month stating the particulars of amount deposited to RBI.
Accounts and balance sheet (Section 29)
1. Banking companies should prepare balance sheet and profit and loss account on last working day of every accounting year in the forms set out in 3rd schedule.
2. Accounts must be signed by atleast 3 directors where no of directors exceeds 3. If no of directors fall short of 3, then all directors must sign the accounts.
3. In case of a banking company incorporated outside india , accounts must be signed by manager or principal officer of the company in India.
Auditing of Banking company (Section 30)1. Balance sheet and P& L made in accordance with section 29 must be audited by a person qualified under law to work as an auditor
2. The banking company must obtain RBI approval before appointing,removing and re-appointment of auditors.
3. When RBI is not satisfied with financial statements of the bank , it can give order for conducting a special audit. And cost of such special audit must be borne by the banking company itself.
4. Auditors’ liabilities, scope, powers are as same as given in section 227 of the companies act 1956.
5. Additional disclosure requirements :-
a. Whether information given is correct and present true and fair view
b. Whether transactions done by the company comes under the purview of powers of company
c. Safety of assets
d. Any other matter which needs to be disclosed
6. Such auditor’s report must be submitted to RBI in 3 copies in prescribed manner. RBI may extend the period of 3 months for furnishing of such returns, if RBI finds it justified to do so.