Banking Regulation Act 1949..

BANKING REGULATION ACT 1949
The Banking Regulation Act controls the institution from birth to death if any
bank has to start a business. It cannot do so unless it has obtained a license
under its provision and if it has closed down its business the winding up
operating will be as per the provision of the act even for the day-to-day business
even for the violation of the provision plenty has being lays down.
The act came into force on 16th March 1949 and applies to the whole of India.
According to sec 5(b), banking means accepting for the purpose of landing or
investment of deposits of money from the public, repayable on demand or
otherwise, and withdrawn by cheque or draft order or otherwise.
PURPOSE
The purpose of enacting the Banking Regulation Act 1949 has to be discussed.
1. To consolidate and amend the law relating to banking companies

2. To check the abuse of power by the manager of the banks and also to soft
guard the interest of deposits and the interest of the country in general.
AMENDMENT TO THE BANKING REGULATION ACT BY
ACT 58 OF 1968
This act introduces radical changes to certain provisions of the act to provide for
the extension of social causes over went.
The controls and restrictions imposed by the amending act are as follows:
1. Constitution a board of directors of a banking company in the field of

banking
2. Management of the affairs of the banking companies by a whole-time
chairman who has special knowledge of and particle expiration in
banking financing economic and business administration.
3. Restriction on loans and advances by a banking company to its director or
its companies in which a director is interested or to an individual to
whom a director is a guarantor
4. Add power conformed on RBI to enforce and supervise the total control
5. Punishment for
 obstructing any person from lawfully entering or leaving the bank
 holding a demonstration within a bank
 acting to undermine demolition confidence in a banking
6. The special power of the central government to acquire taking of banking
activities when it is satisfied by the RBI that the banking companies have
committed a certain default and that is necessary to do so
CONSTITUTION OF BANKS
Banks in India for under one of the following
1. Body corporate- public banks

2. Banking companies- companies act, private banks
3. Corporative society- corporative banks
Meaning of banking or banking company Sec 6(B)Banking Act 1949
The definition of banking in sec 5 (1)(B) makes clear the essential functions of a
banking company are:
 Accepting of deposits
 Lending or investing them is the essential function of a banking
company
A business will not be called a banking business if the purpose of

accepting deposits is not lend or invest
According to the definition, the following are the chief characteristics of the
banking business:
1- There should be acceptance of deposit

2- The deposit should be from the public
3- Repayable on demand or otherwise
4- Withdraw by cheque, draft, order, or otherwise
5- Purpose of acceptance of deposits
Kinds of banks
1- Central bank
RBI(Reserve Bank of India)
Reserve Bank of India is the central bank of India
It is a bank which is entrusted with the function of guiding and regulating bank
system
It is known as the banker's bank
It is a governments bank and it generally does not deal with public
It provides guides to the other banks whenever they face difficulty
It issues currency notes and advice the govt on various monetary and credit
policies
2- Commercial banks
They accept deposits of grant short-term loans to their customer
It gives long-term loan and medium terms loan to the business enterprise
They also provide housing loans on a long-term basis to individual
Type of commercial banks
1- Public banks
Where the majority of stake is held by govt of India or RBI
Eg.- SBI, PNB, etc
2- Private sector banks
Where a private individual holds the majority of the stake
Eg.-union bank, BOI, etc
3- Foreign bank
They are registered and have their headquarters in foreign countries but have
their branches in our country
The function of a commercial bank
1- Primary function
 Accepting deposits
 Grant of loan and advance
2- Secondary function
 Undertake safe custody of valuables
 Private facility for foreign exchange
 Transfer of money from one account to another and from one branch of
the bank to another branch
 Collecting and supplying business information
 Standing guarantee on behalf of its customer
 Granting Edu. Loan to students
 Issuing letter of credit traveller cheque etc
Co-operative bank
Co-operative societies are formed by people who come together to create a
society jointly so, as to support their common interest their societies are formed
under the Cooperative Societies Act
When a cooperative society in the banking business is called a cooperative bank

they have to obtain a license from the RBI
Type of cooperative bank
1- Primary credit societies

2- Central cooperative banks
3- State cooperative bank
1- Primary credit bank
o They are formed at the village and town level.
o The operation of each society is restricted to a minimal area.
o All the members know each other.
2- Central cooperative banks
o They operate at a district level.
o They have some of the primary credit societies belonging to the same
district as their member.
o They provide loans to their member.
o They act as a link between the primary credit and state cooperative banks.
3- State cooperative banks
o There are higher levels of cooperative banks in every state of our country.
o They mobilized funds and helped in proper channelization among various
other societies.
Institutionalised banks
1- LIC- LIFE INSURANCE CORPORATION OF INDIA
o It is the largest institutional investor in the country
o The investment of LIC is registered by sec 27(A) of the Insurance
Act 1938
2- GIC- GENERAL INSURANCE CORPORATION OF INDIA
o It was established in1973
o The GIC along with its 4 subsidiaries namely National Insurance
Company Ltd, New India Assurance Company Ltd , Oriental Fire
and General Insurance Company Ltd and United India Insurance
Company Ltd operate several insurance schemes to cater to the
diverse needs of society according to guidelines issued by govt.
3- UTI- UNIT TRUST OF INDIA
o It was established in 1964 under the UTI Act of 1963.
o It mobilizes the saving of the community. Through the sale of its
units under various unit schemes.
Specialized Bank
The bank provides support for setting up businesses in specific areas of
an activity only.
Some of the specialized banks cries Exim Bank of India.
NABARD (NATIONAL BANK FOR AGRICULTURE AND RURAL

DEVELOPMENT)
It finances agriculture and the rural sector. It can provide both short and
long-term loans through RRB
EXIM BANK
o These banks provide support and assistance for setting up
businesses for exporting products abroad or importing products
from foreign countries for sale in our country.
o They also provide information on the international market.
Development banks
1- It raises the bulk of its funds from
A) Market borrowing by way of bonds
B) The borrowing out of the National Industrial Credit Fund of RBI
2- They provide medium and long-term capital for the purchase of
machinery and equipment for using the latest technology for expansion
and modernization.
They can be classified into 2 parts :-
1.All India Development Bank
2.State-level development bank
Some of the examples are
IDBI , IFCI , ICICI , SFC’s , SIDC’s
PHASES OF INDIAN BANKING
Foundation Phases (1950 to 1969)

Most of the banks had been established between 1901 to 1950 most of the
banks were neither financially very strong nor had banking-oriented
management
After independence there was an utmost need to rebuild the economy
thus, to infuse confidence in the bank system fix the priority of the bank,
and focus on the social development role, the banks were nationalized
which eventually became the banking revolution.
Expansion phases (1970 to 1984)

The basic objective of this phase was to reach the masses at the point of
rural and semi-India, the concept of mass banking became the buzzword
to meet the objective all the nationalized banks went in for massive and
respectful rapid branch expansion
To meet the objective of nationalization live achievement of private
sector lending credit deposit ratio landing to weaker sector etc were fixed
for the public sector banks which exited as on date with subsequent
revision and modification
Consolidation phases (1985 to 1990)

During this phase sessions were made to address the efforts' weakness
and defect notices as the result of speedy inspection productive and
profitability were the areas of the annual action plan that was adapted and
implemented by banks to improve overall performance during the period
utilized by banks in consolidating and systemizing the works they had
done during the expansion period
Reforms and liberalization phases 1991

Indian banks operate under structural rigidity and external constraints
besides working under a protected environment this resulted in a gradual
decline in productivity and a high in non-performing assets in 1991 the
problem reached a critical breaking point so the govt set up the
Narasimhan comity on the financial system to examine the issue and
make a recommendation
Scenario of Indian banking 2009 onwards
Nationalization of banks and social control over

banking
1- Social control over banking
Social control was empowered through the Banking Law Act 1968
(amendment) which amended the Banking Regulation Act 1949. The
preamble of the act read as
“An act future to amend the Banking Regulation Act 1949 to provide
for the extension of social control over banks and matters connected
herein or to that and also further to amend the RBI act and the SBI
act”
Social control came into control as there were complainants that the
result of the bank, advances was a director to the large and medical
scale industries and that the sector demands such as small scale
industry agriculture and export were not receiving their due share
2- Nationalization of banks
Meaning of nationalization- nationalization of often termed as a way
for the government to expend its power and economic resources, it is a
process of taking a private industry or private assets into public
ownership by a national govt or state government
The objective of nationalization or why banks were nationalized in

India
The nationalization of banks in India particularly the major
commercial banks was a significant economic and political move with
several key objectives
1- Financial inclusion- one of the primary goals was to increase

access to banking services for the vast majority of the population
especially in rural and semi-urban areas before nationalization
banks were primarily concentrated in urban areas and served
mainly the wealthier section of society.
2- Control of credit- nationalization aimed to ensure that credit was
directed toward sectors that were crucial for national development
such as agriculture small-scale industries and other priority sectors.
3- Economic development- by nationalizing banks the Indian
government sought to use financial resources to drive economic
growth and development
4- Reduce inequality- nationalization was seen as a way to address
economic disparities by ensuring a more equitable distribution of
financial resources
5- Strengthen the public sector- nationalizing the bank was also part
of a larger strategy to expand the public sector's role in the
economy. This reflected a broader policy of state-led development
which was prevalent in India during the 1960s and 1970s
Nationalization of 14 commercial banks in India
On July 19, 1969, 14 major banks were nationalized and taken over by the
government of India. This was done by the government by issuing an ordinary
“banking companies (acquisition and transfer of undertaking) ordinance 1969”
which came into effect from midnight of July 1969.
The 14 banks which were nationalized by the ordinance were
1. The Central Bank Ltd

2. The Bank of Ltd
3. The PNB Ltd
4. The BOB Ltd
5. The United Commercial Bank Ltd
6. The Canara Bank Ltd
7. The United Bank of India Ltd
8. The Dena Bank Ltd
9. The Syndicate Bank Ltd.
10.The Union Bank of India Ltd
11.The Allahabad Bank Ltd
12.The Indian Bank Ltd
13.The Bank of Maharashtra
14.The Indian Overseas Ltd
ALL THESE BANKS HAD DEPOSITS OF MORE THAN

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BANKING REGULATION ACT 1949

1. To consolidate and amend the law relating to banking companies

1. Constitution a board of directors of a banking company in the field of

Banks in India for under one of the following

1. Body corporate- public banks

Meaning of banking or banking company Sec 6(B)Banking Act 1949

A business will not be called a banking business if the purpose of

1- There should be acceptance of deposit

They also provide housing loans on a long-term basis to individual

Type of commercial banks

Where the majority of stake is held by govt of India or RBI

Eg.- SBI, PNB, etc

2- Private sector banks

Where a private individual holds the majority of the stake

Eg.-union bank, BOI, etc

When a cooperative society in the banking business is called a cooperative bank

Type of cooperative bank

1- Primary credit societies

NABARD (NATIONAL BANK FOR AGRICULTURE AND RURAL

Some of the examples are

IDBI , IFCI , ICICI , SFC’s , SIDC’s

PHASES OF INDIAN BANKING

Foundation Phases (1950 to 1969)

Expansion phases (1970 to 1984)

Consolidation phases (1985 to 1990)

Reforms and liberalization phases 1991

Scenario of Indian banking 2009 onwards

Nationalization of banks and social control over

The objective of nationalization or why banks were nationalized in

1- Financial inclusion- one of the primary goals was to increase

Nationalization of 14 commercial banks in India

The 14 banks which were nationalized by the ordinance were

1. The Central Bank Ltd

ALL THESE BANKS HAD DEPOSITS OF MORE THAN

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