THE BANKING REGULATION ACT 1949 - Important Sections
The act came into force w.e.f 16.03.1949. It extends to whole of India (made applicable to J&K in 1956). The Act was passed as “The Banking Companies Act, 1949” which was later named as “The Banking Regulation Act 1949” w.e.f. 01.03.1966. Important sections of the act are:
Section 5: Contains definition of Banking, Banking Company , secured loans or advances
Section 6: Describes the forms of business in which a banking company may engage in addition to the Banking Business.
Section 7: Use of Word Banking: Banking company carrying on banking business in India to use at least one word, bank, banker, banking, or banking company in its name.
Section 8: Prohibition of trading: restricts/prohibits business like trading for goods etc.
Section 9: No Banking company shall hold any immovable property howsoever acquired except as is acquired for its own use for a period exceeding 7 years from the date of acquisition. RBI can further grant extension for a period not exceeding 5 years.
Section10: Management: Prohibitions on employment of managing agents and restriction on certain form of employment.
A person adjudicated insolvent, convicted for an offence involving moral turpitude, or one who has suspended payment or has compounded with his creditor cannot be employed by the banking company. Every Banking Company should be managed by a whole time Chairman Term of office at any one time cannot exceed 5 years.
Section11: Requirement as to minimum paid up Capital and Reserves
Domestic Banks – Min. – Rs. 5 lac
Foreign Banks - Min. – Rs. 15 lac (Rs. 20 lac for business in Mumbai or Kolkata)
Section12: Regulation of paid up capital, subscribed capital and authorized capital and voting rights
Subscribed capital should not be less than 1⁄2 of its authorized capital
No person shall have voting rights in excess of 10% of total voting rights of all the members.
Section 13: Commission / brokerage, discount etc. on sales of shares; cannot pay more than 2.5% of paid up value of one share.
Section14: Prohibits a banking company from creating a charge upon any unpaid capital. 14A Prohibits a banking company from creating a floating charge on the undertaking or any property of the company without the permission of RBI
Section 15: Restrictions as to payment of dividend: Prohibits payment of dividend until all its capitalized expenditure has been completely written off.
Section 17: Every banking company to create reserve fund and 20% of its profits should be transferred to this fund before any dividend is declared.
The appropriation of any sum from the reserve fund or share premium account is to be reported to Reserve Bank, within 21 days from date.
Section 18: Cash Reserve: Non scheduled banks to maintain 3% of the demand and time liabilities by way of cash reserves with itself or by way of balance in a Current Account with RBI.
Section 20: Restrictions on loans and advances: Banks cannot grant loans against security of their own shares.
Section 21: Empowers the RBI to issue directives to banks to determine policy for Advances.
Section 22: Empowers RBI to issue license for opening a bank.
Section 23: Empowers RBI to grant license for opening of branches
Section 24: Statutory Liquidity Ratio--Every bank has to maintain liquid assets in form of cash, gold & unencumbered approved securities at the close of any business which is minimum of certain percentage.
Section 26: Return of unclaimed deposits (10 years and above) within 30 days of close of each calendar year.
Section 31: To publish Balance Sheet and Auditors report within 3 months from the end of period to which they refer.
Section 35: Authorizes RBI to undertake inspection of banks and give appropriate directions.
Section 45: Enpowers RBI to apply to Central Govt. for suspension of business by a Banking company and to prepare scheme of amalgamation.
Section 45Y: Empowers Central Govt. to frame rules specifying the period for which a bank shall preserve its books.
Section 45Z:Returning a paid instrument to a customer after keeping true copy.
Section 45ZA to 45ZF: Nomination Facility
Section 47A: RBI can impose penalty for various kinds of violations.
Section 49A: No person can accept deposit of money withdrawable by cheque other than a banking company/RBI/ SBI.
All Sections of Banking Regulation Act, 1949, as amended by The National Bank for Financing Infrastructure and Development Act, 2021
Preamble 1 - THE BANKING REGULATION ACT, 1949
Part 1 - PRELIMINARY
Section 1 Short title, extent and commencement
Section 2 Application of other laws not barred
Section 3 Act not to apply to certain cooperative societies
Section 4 Power to suspend operation of Act
Section 5 Interpretation
Section 5A Act to override memorandum, articles, etc
Part 2 - BUSINESS OF BANKING COMPANIES
Section 6 Forms of business in which banking companies may engage
Section 7 Use of words “bank”, “banker”, “banking” or “banking company”
Section 8 Prohibition of trading
Section 9 Disposal of non-banking assets
Section 10 Prohibition of employment of managing agents and restrictions on
certain forms of employment
Section 10A Board of directors to include persons with professional or other
experience
Section 10B Banking company to be managed by whole time chairman
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
Section 10C Chairman and certain directors not to be required to hold qualification
shares
Section 10D Provisions of sections 10A and 10B to override all other laws,
contracts, etc
Section 11 Requirement as to minimum paid-up capital and reserves
Section 12 Regulation of paid-up capital, subscribed capital and authorised capital
and voting rights of shareholders
Section 12A Election of new directors
Section 12B Regulation of acquisition of shares or voting rights
Section 13 Restriction on commission, brokerage, discount, etc. on sale of shares
Section 14 Prohibition of charge on unpaid capital
Section 14A Prohibition of floating charge on assets
Section 15 Restrictions as to payment of dividend
Section 16 Prohibition of common directors
Section 17 Reserve Fund
Section 18 Cash reserve
Section 19 Restriction on nature of subsidiary companies
Section 20 Restrictions on loans and advances
Section 20A Restrictions on power to remit debts
Section 21 Power of Reserve Bank to control advances by banking companies
Section 21A Rates of interest charged by banking companies not to be subject to
scrutiny by courts
Section 22 Licensing of banking companies
Section 23 Restrictions on opening of new, and transfer of existing, places of business
Section 24 Maintenance of a percentage of assets
Section 25 Assets in India
Section 26 Return of unclaimed deposits
Section 26A Establishment of Depositor Education and Awareness Fund
Section 27 Monthly returns and power to call for other returns and information
Section 28 Power to publish information
Section 29 Accounts and balance-sheet
Section 29A Power in respect of associate enterprises
Section 30 Audit
Section 31 Submission of returns
Section 32 Copies of balance-sheets 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 34A Production of documents of confidential nature
Section 35 Inspection
Section 35A Power of the Reserve Bank to give directions
Section 35AA Power of Central Government to authorise Reserve Bank for issuing directions to banking companies to initiate insolvency resolution process
Section 35AB Power of Reserve Bank to issue directions in respect of stressed assets
Section 35B Amendments of provisions relating to appointments of managing directors, etc., to be subject to previous approval of the Reserve Bank
Section 36 Further powers and functions of Reserve Banks
Section 36A Certain provisions of the Act not to apply to certain banking companies
Part 2A - CONTROL OVER MANAGEMENT
Section 36AA Power of Reserve Bank to remove managerial and other persons from
office
Section 36AB Power of Reserve Bank to appoint additional directors
Section 36AC Part IIA to override other laws
Part 2AB - SUPERSESSION OF BOARD OF DIRECTORS OF BANKING COMPANY
Section 36ACA Supersession of Board of Directors in certain cases
Part 2B - PROHIBITION OF CERTAIN ACTIVITIES IN RELATION TO BANKING COMPANIES
Section 36AD Punishments for certain activities in relation to banking companies
Part 2C - ACQUISITION OF THE UNDERTAKINGS OF BANKING COMPANIES IN CERTAIN CASES
Section 36AE Power of Central Government to acquire undertakings of banking
companies in certain cases
Section 36AF Power of the Central Government to make scheme
Section 36AG Compensation to be given to shareholders of the acquired bank
Section 36AH Constitution of the Tribunal
Section 36AI Tribunal to have powers of a civil court
Section 36AJ Procedure of the Tribunal
Part 3 - SUSPENSION OF BUSINESS AND WINDING UP OF BANKING COMPANIES
Section 36B High Court defined
Section 37 Suspension of business
Section 38 Winding up by High Court
Section 38A Court liquidator
Section 39 Reserve Bank to be official liquidator
Section 39A Application of Companies Act to liquidators
Section 40 Stay of proceedings
Section 41 Preliminary report by official liquidator
Section 41A Notice to preferential claimants and secured and unsecured creditors
Section 42 Power to dispense with meetings of creditors, etc
Section 43 Booked depositors' credits to be deemed proved
Section 43A Preferential payments to depositors
Section 44 Powers of High Court in voluntary winding up
Section 44A Procedure for amalgamation of banking companies
Section 44B Restriction on compromise or arrangement between banking company
and creditors
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 or amalgamation
Part 3A - SPECIAL PROVISIONS FOR SPEEDY DISPOSAL OF WINDING UP PROCEEDINGS
Section 45A Part III A to override other laws
Section 45B Power of High Court to decide all claims in respect of banking companies
Section 45C Transfer of pending proceedings
Section 45D Settlement of list of debtors
Section 45E Special provisions to make calls on contributories
Section 45F Documents of banking company to be evidence
Section 45G Public examination of directors and auditors
Section 45H Special provisions for assessing damages against delinquent directors, etc
Section 45I Duty of directors and officers of banking company to assist in the realisation or property
Section 45J Special provisions for punishing offences in relation to banking companies being wound up
Section 45K Power of High court to enforce schemes of arrangements, etc
Section 45L Public examination of directors and auditors, etc., in respect of a banking company under schemes of arrangement
Section 45M Special provisions for banking companies working under schemes of arrangement at the commencement of the Amendment Act
Section 45N Appeals
Section 45O Special period of limitation
Section 45P Reserve Bank to tender advice in winding up proceeding
Section 45Q Power to Inspect
Section 45R Power to call for returns and information
Section 45S Chief Presidency Magistrate and District Magistrate to assist official
liquidator in taking charge of property of banking company being wound up
Section 45T Enforcement of orders and decisions of High Court
Section 45U Power of High Court to make rules
Section 45V References to directors, etc., shall be construed as including references to past directors, etc
Section 45W Part II not to apply to banking companies being wound up
Section 45X Validation of certain proceedings
Part 3B - PROVISIONS RELATING TO CERTAIN OPERATIONS OF BANKING COMPANIES
Section 45Y Power of Central Government to make rules for the preservation of records
Section 45Z Return of paid instruments to customers
Section 45ZA Nomination for payment of depositors' money
Section 45ZB Notice of claims of other persons regarding deposits not receivable
Section 45ZC Nomination for return of articles kept in safe custody with banking company
Section 45ZD Notice of claims of other persons regarding articles not receivable
Section 45ZE Release of contents of safety lockers
Section 45ZF Notice of claims of oilier persons regarding safety lockers not receivable
Part 4 - MISCELLANEOUS
Section 46 Penalties
Section 46A Chairman, director, etc., to be public servants for the purposes of
Chapter IX of the Indian Penal Code
Section 47 Cognizance of offences
Section 47A Power of Reserve Bank to impose penalty
Section 48 Application of fines
Section 49 Special provisions for private banking companies
Section 49A Restriction on acceptance of deposits withdrawable by cheque
Section 49B Change of name by a banking company
Section 49C Alteration of memorandum of a banking company
Section 50 Certain claims for compensation barred
Section 51 Application of certain provisions to the State Bank of India and other notified banks
Section 51A Powers of Reserve Bank not to apply to International Financial Services Centre
Section 52 Power of Central Government to make rules
Section 53 Power to exempt in certain cases
Section 54 Protection of action taken under Act
Section 55 Amendment of Act 2 of 1934
Section 55A Power to remove difficulties
Part 5 - APPLICATION OF THE ACT TO CO-OPERATIVE BANKS
Section 56 Act to apply to co-operative societies subject to modifications
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