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This book offers a comprehensive coverage of laws and practices relating to banking. It begins with a module on the legal framework of regulations and the. JAIIB MADE SIMPLE. LEGAL & REGULATORY. ASPECTS OF BANKING. (JAIIB PAPER -3). Version (A Very useful book for Day to Day Banking and all. JAIIB MADE EASY 3: LEGAL & REGULATORY ASPECTS OF BANKING- A Complete Book: Updated specially for exam eBook: EXPERIENCED .


Legal And Regulatory Aspects Of Banking Ebook

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Every banking company has to use the word "bank" as part of its name See, Section 7 of the Act and no company other than a banking company can use the words "bank", "banker", "banking" as part of its name.

Further, no firm, individual or group of individuals is permitted to use the words "bank", "banking" or "banking company" as a part of the name or for the purpose of business. Subsidiaries of banks and association of banks in certain cases as also Primary Credit Societies are exempted from this restriction.

Permitted Business: Although, traditionally, the main business of banks is acceptance of deposits and lending, the banks have now spread their wings far and wide into many allied and even unrelated activities. The Central Government has accordingly specified leasing and factoring as permissible business for banks. Prohibited Business: Section 8 of the Banking Regulation Act prohibits a banking company from engaging directly or indirectly in trading activities and undertaking trading risks.

Buying or selling or bartering of goods directly or indirectly is prohibited.

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However, this is without prejudice to the business permitted under Section 6 1 of the Act. Accordingly, a bank can realise the securities given to it or held by it for a loan, if need arises for the realisation of the amount lent.

It can also buy or sell or barter for others in connection with: i bills of exchange received for collection or negotiation, and ii undertaking the administration of estates as executor, trustee, etc. Goods for the purpose of this Section means every kind of moveable property, other than actionable claims, stocks, shares, money, bullion and specie and all instruments referred to in Clause a of subSection 1 of Section 6.

As regards immoveable properties, Section 9 prohibits a banking company from holding such property, howsoever acquired, except as is required for its own use, for a period exceeding seven years from the acquisition of the property. The Reserve Bank may extend this period by another five years, if it is satisfied that such extension would be in the interest of the depositors of the banking company.

The banking company shall be required to dispose of such property within the permitted period. Banks in India fall under one of the following categories: a Body corporate constituted under a special statute; b Company registered under the Companies Act, or a foreign company; c Co-operative society registered under a central or state enactment on co-operative societies. Public Sector Banks: The public sector banks including nationalised banks, State Bank of India and its associates subsidiaries and the Regional Rural Banks fall in the first category.

The regional rural banks are constituted under the Regional Rural Banks Act, These banks are governed by the statutes creating them as also some of the provisions of the Banking Regulation Act and the Reserve Bank of India Act.

The details are discussed in Unit 5. Banking Companies: A banking company, as defined in Section 5 c of the Banking Regulation Act is a company which transacts the business of banking. Such company may be a company constituted under Section 3 of the Companies Act or a foreign company within the meaning of Section of that Act.

All the private sector banks are banking companies. These banks are governed by the Companies Act, in respect of their constitution and by the Banking Regulation Act and the RBI Act with regard to their business of banking. Co-operative Banks: A co-operative bank is a co-operative society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-state co-operative societies, or any other central or state law relating to co-operative societies for the time being in force.

If a co-operative bank is operating in more than one state, the Central Act applies. In other cases, the state laws apply. After the Supreme Court held in Apex Cooperative Bank s case AI R SC that multi-state co-operative societies cannot be licensed as co-operative banks, the Banking Regulation Amendment and Miscellaneous Provisions Act, was enacted to permit licensing of multi-state co-operative banks. A "multi-state cooperative bank" under this Act means a multi-state co-operative society which is a primary co-operative bank.

The Reserve Bank of India Act, was enacted to constitute the Reserve Bank of India: i to regulate the issue of bank notes, ii for keeping reserves for securing monetary stability in India, and iii to operate the currency and credit system of the country to its advantage. The Act came into force on 6th March The Act has been amended from time to time to meet the demands of changing times.

The Act deals with the constitution, powers and functions of the Reserve Bank. It does not directly deal with regulation of the banking system except for Section 42, which provides for cash reserves of scheduled banks to be kept with the Reserve Bank, with a view to regulating the credit system and ensuring monetary stability. Further, Section 18 of the Act provides for direct discount of bills of exchange and promissory notes when a special occasion arises, making it necessary or expedient for the purpose of regulating credit in the interests of trade, industry and agriculture.

The Act, in short, deals with: i incorporation, capital, management and business of the bank; ii the central banking functions like issue of bank notes, monetary control, acting as banker to government and banks, lender of last resort; iii collection and furnishing of credit information; iv acceptance of deposits by non-banking financial institutions; v general provisions regarding reserve fund, credit funds, publication of bank rate, audit and accounts; and vi penalties for violation of the provisions of the Act or the directions issued thereunder.

The Banking Regulation Act, was enacted to consolidate and amend the law relating to banking and to provide for a suitable framework for regulating the banking companies. Initially, the Act provided for regulation of banking companies only, but in the Act was amended to cover co-operative banks as well with certain modifications See, Section However, the Act, as provided in Section 3, does not apply to primary agricultural credit societies and co-operative land mortgage banks.

The provisions of the Act are applicable to banking companies in addition to other laws which are applicable to such companies, unless otherwise specifically provided in the Act.

Thus, Companies Act, which deals with the incorporation and working of companies is applicable to banking companies except where special provisions are made in the Banking Regulation Act in that regard.

The Act regulates entry into banking business by licensing as provided in Section 22 thereof. The Act also puts restrictions on the shareholding, directorship, voting rights and other aspects of banking companies. There are several provisions in the Act regulating the business of banking such as restriction on loans and advances, rates of interest to be charged, requirement as to cash reserve and maintenance of percentage of assets, etc. There are provisions regarding audit and inspection and submission of balance sheets and accounts.

The Act provides for control over the management of banking companies and also deals with the procedure for winding up of the business of the banks and penalties for violation of its provisions.

LEGAL & REGULATORY ASPECTS OF BANKING 3ED

In short, the Act deals with: a b c d regulation business of banking companies; control over the management of banking companies; suspension and winding up of banking business; and penalties for violation of the provisions of the Act. The Reserve Bank was constituted under Section 3 of the Reserve Bank of India Act, for taking over the management of currency from the Central Government and carrying on the business of banking in accordance with the provisions of the Act.

Originally, under the RBI Act, the Bank had the responsibility of: a regulating the issue of bank notes; b keeping of reserves for ensuring monetary stability; and c generally to operate the currency and credit system of the country to its advantage. The Reserve Bank is a body corporate having perpetual succession and common seal and shall sue and be sued in its name. The whole capital of the bank is held by the Central Government. The Bank has its central office in Mumbai and offices in Mumbai, Kolkata, Delhi and Chennai, and branches at most of the state capitals and some other cities.

The bank functions under the general superintendence and directions of the Central Board of 9 Directors. The bank has to abide by the directions given by the Central Government in public interest after consultation with the Governor of the bank. The board shall consist of a Governor and not more than four Deputy Governors to be appointed by Central Government and other directors nominated by the Central Government.

Apart from the Central Board, the bank has also local boards situated at Mumbai, Kolkata, Delhi and Chennai, which perform any duty delegated to them by the Central Board. The Governor has the power of general superintendence and direction of the affairs of the bank and exercise all powers of the bank unless otherwise provided in the regulations made by the Central Board. The Deputy Governors, Executive Directors and other officers in different grades assist the Governor in the discharge of the Bank s functions.

The bank may issue notes of different denominations from Rs. Such notes shall be legal tender at any place in India.

The bank is the banker to the Central Government under Section 20 of the Act, and accordingly it is obligatory to undertake banking business for the Central Government. In the case of state governments, their banking business is undertaken by the bank based on agreements as provided in Section 21 A.

Bank provides ways and means of advances to the Central and state governments.

These are temporary advances to meet immediate needs when there is interval between expenditure and flow of revenue. The role of the bank as regulator of banking sector is mainly by virtue of the provisions of the Banking Regulation Act, In exercise of the powers under that Act the bank regulates the entry into banking business by licensing, exercises control over shareholding and voting rights of shareholders, exercises controls over the managerial persons, and regulates the business of banks.

The bank also inspects banks and exercises supervisory powers, and may issue directions from time to time in public interest and in the interest of the banking system with respect to interest rates, lending limits, investments and various other matters. The Reserve Bank is the primary regulator of banks. The government holds the entire capital of the Reserve Bank and appoints the Governor and the members of the Central Board and has the power to remove them. The government has also the power to issue directions to the Reserve Bank under Section 7 I of the RBI Act whenever considered 10 necessary in public interest after consultation with the Governor.

Thus, the government can exercise control over banks by influencing decision-making by the Reserve Bank and has also got appellate authority in respect of several matters in which the Reserve Bank has been conferred the power to decide at the first instance. Similarly, there are also provisions for appeal in respect of cancellation of banking licence under Section 22 and refusal of certificate regarding floating charge on assets Section 14A.

The government has also the power to notify other forms of business which a bank may undertake under Section 6 1 o of the Act. Rule-making powers under Sections 52 and 45Y are vested in the Central Government. There are also other provisions under which the Central Government exercises powers as under: a b c d e f Approval for formation of subsidiary for certain business under Section 19; Notification with reference to accounts and balance sheet under Section 29; Issue of direction for inspection of banks under Section 35; Power to acquire undertakings of banks Section 36AE ; Appointment of court liquidator; Suspension of business and amalgamation of banks under Section The above provisions confer wide powers on the Central Government to regulate banks.

These are in addition to the powers conferred on the government as majority shareholder or full owner of public sector banks under the statutes constituting them. A co-operative bank is a co-operative society engaged in the business of banking and may be a primary Co-operative bank, a district central co-operative bank or a state co-operative bank. Cooperative banks operating in one state only are registered under the State co-operative Societies Act concerned. The formation of such banks as well as their management and control over personnel is regulated by the co-operative law of the state.

The Registrar of co-operative societies under the Co-operative Societies Act exercises a wide range of powers on co-operative societies from registration to winding up. In the case of co-operative banks operating in more than one state, the Multi-State Co-operative Societies Act, is applicable. In that case, the Registrar appointed by the Central Government takes the place of the Registrar appointed by the State Government in other cases. With the introduction of Section 56 in the Banking Regulation Act, with effect from , cooperative banks have come under the regulatory purview of the Reserve Bank.

While the formation and management of co-operative societies operating in one state only including those conducting banking business are under the control of the State Government, licensing and regulation of banking business rests with the Reserve Bank. Thus, there is dual control of State Governments and the Reserve Bank over these banks. In the case of co-operative banks which are registered under the Deposit Insurance and Credit Guarantee Corporation Act, the Reserve Bank has the power to order their winding up.

The circumstances in which Reserve Bank may require winding up are mentioned in Section 13D of the Act. Banks may be subject to the control of other regulatory agencies in the conduct of their business. For instance, a banking company will be subject to the control of the authorities under the Companies Act in respect of company matters. Similarly, a bank is answerable to labour authorities in respect of the terms and conditions of service of its workmen, opening and closing of its premises, engagement of contract labour, etc.

Banks are also liable to pay income tax like cash transaction tax, service tax, etc. As provided in Section 6 of the Banking Regulation Act, banks may undertake certain non-banking business in addition to the business of banking. In that regard also, banks may be subject to the regulatory control of other agencies. For instance, in the case of dealings in securities like shares and debentures, banks are subject to regulation by the Securities Exchange Board of India under the Securities Contract Regulation Act, read with the Securities and Exchange Board of India Act, Definition and Features of a Company Types of Companies Memorandum of Association and Articles of Association Membership Prospectus Directors Foreign Exchange Management Act, Transfer of Property Act, The Right to Information Act, Right to Information and Obligations of Public Authorities The Prevention of Money Laundering Act, Legal Framework of Regulation of Banks Unit 2.

Control over Organisation of Banks Unit 3. Regulation of Banking Business Unit 4. Returns, Inspection. Winding Up Unit 5. The Reserve Bank of India and the Government of India exercise control over banks from the opening of banks to their winding up by virtue of the powers conferred under these statutes. All the regulatory provisions are not uniformly applicable to all banks.

The applicability of the provisions of these Acts to a bank depends on its constitution; that is, whether it is a statutory corporation, a banking company or a co-operative society. In this unit, we look at the definition of banking, the constitution of different types of banks and applicability of regulatory laws, the general framework of the regulatory laws and the role of regulators namely, the Reserve Bank of India and the government.

Definition of Banking: Banking is defined in Section 5 b of the Banking Regulation Act as the acceptance of deposits of money from the public for the purpose of lending or investment.

Such deposits may be repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise. Thus, a bank must perform two essential functions: i acceptance of public deposits, and ii lending or investment of such deposits.

The deposits may be repayable on demand or for a period of time as agreed by the banker and the customer. In terms of the definition, the banker can accept "deposits" of money and not anything else. Further, accepting deposits from the "public" implies that a banker accepts deposits from anyone who offers money for such purpose. However, a banker can refuse to open account for undesirable persons and further, the opening of accounts is subject to certain conditions like proper introduction and identification.

The "Know Your Customer" guidelines issued by the Reserve Bank require banks to follow certain customer identification procedure for opening of accounts for protecting the banks from frauds, etc.

There is. These characteristics are not equivalent to a definition, and these are also not the only characteristics. See, Paget's Law of Banking, 12th Edn.

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Deposits Withdrawable by Cheque: Under Section 49 A of the Banking Regulation Act, no organisation other than a bank is authorised to accept deposits withdrawable by cheque. The Savings Bank 5 Scheme run by the government, a Primary credit society and any other person or firm notified by the government are exempted from this prohibition.

Acceptance of Deposits by Non-banking Entities: There are also non-banking companies, firms and other unincorporated associations of persons and individuals who accept deposits from the public. Individuals, firms and other unincorporated associations of persons whose business includes the business of a financial institution or whose principal business is acceptance of deposits, is prohibited under Section 45S of the RBI Act as amended in from accepting deposits from the public, except relatives.

This prohibition does not apply to acceptance of deposits by those who are mainly engaged in manufacturing or trading. Licence for Banking: In India, it is necessary to have a licence from the Reserve Bank under Section 22 of the Banking Regulation Act for commencing or carrying on the business of banking.

Every banking company has to use the word "bank" as part of its name See, Section 7 of the Act and no company other than a banking company can use the words "bank", "banker", "banking" as part of its name.

Further, no firm, individual or group of individuals is permitted to use the words "bank", "banking" or "banking company" as a part of the name or for the purpose of business. Subsidiaries of banks and association of banks in certain cases as also Primary Credit Societies are exempted from this restriction.

Permitted Business: Although, traditionally, the main business of banks is acceptance of deposits and lending, the banks have now spread their wings far and wide into many allied and even unrelated activities.

The Central Government has accordingly specified leasing and factoring as permissible business for banks. Prohibited Business: Section 8 of the Banking Regulation Act prohibits a banking company from engaging directly or indirectly in trading activities and undertaking trading risks.

Buying or selling or bartering of goods directly or indirectly is prohibited. However, this is without prejudice to the business permitted under Section 6 1 of the Act. Accordingly, a bank can realise the securities given to it or held by it for a loan, if need arises for the realisation of the amount lent. It can also buy or sell or barter for others in connection with: i bills of exchange received for collection or negotiation, and ii undertaking the administration of estates as executor, trustee, etc.

Goods for the purpose of this Section means every kind of moveable property, other than actionable claims, stocks, shares, money, bullion and specie and all instruments referred to in Clause a of subSection 1 of Section 6. As regards immoveable properties, Section 9 prohibits a banking company from holding such property, howsoever acquired, except as is required for its own use, for a period exceeding seven years from the acquisition of the property. The Reserve Bank may extend this period by another five years, if it is satisfied that such extension would be in the interest of the depositors of the banking company.

The banking company shall be required to dispose of such property within the permitted period. Banks in India fall under one of the following categories: a Body corporate constituted under a special statute; b Company registered under the Companies Act, or a foreign company; c Co-operative society registered under a central or state enactment on co-operative societies.

Public Sector Banks: The public sector banks including nationalised banks, State Bank of India and its associates subsidiaries and the Regional Rural Banks fall in the first category.

The regional rural banks are constituted under the Regional Rural Banks Act, These banks are governed by the statutes creating them as also some of the provisions of the Banking Regulation Act and the Reserve Bank of India Act. The details are discussed in Unit 5. Banking Companies: A banking company, as defined in Section 5 c of the Banking Regulation Act is a company which transacts the business of banking.

Such company may be a company constituted under Section 3 of the Companies Act or a foreign company within the meaning of Section of that Act.

All the private sector banks are banking companies. These banks are governed by the Companies Act, in respect of their constitution and by the Banking Regulation Act and the RBI Act with regard to their business of banking.

Co-operative Banks: A co-operative bank is a co-operative society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-state co-operative societies, or any other central or state law relating to co-operative societies for the time being in force. If a co-operative bank is operating in more than one state, the Central Act applies. In other cases, the state laws apply. After the Supreme Court held in Apex Cooperative Bank s case AI R SC that multi-state co-operative societies cannot be licensed as co-operative banks, the Banking Regulation Amendment and Miscellaneous Provisions Act, was enacted to permit licensing of multi-state co-operative banks.

A "multi-state cooperative bank" under this Act means a multi-state co-operative society which is a primary co-operative bank. The Reserve Bank of India Act, was enacted to constitute the Reserve Bank of India: i to regulate the issue of bank notes, ii for keeping reserves for securing monetary stability in India, and iii to operate the currency and credit system of the country to its advantage.

The Act came into force on 6th March The Act has been amended from time to time to meet the demands of changing times. The Act deals with the constitution, powers and functions of the Reserve Bank. It does not directly deal with regulation of the banking system except for Section 42, which provides for cash reserves of scheduled banks to be kept with the Reserve Bank, with a view to regulating the credit system and ensuring monetary stability.

Further, Section 18 of the Act provides for direct discount of bills of exchange and promissory notes when a special occasion arises, making it necessary or expedient for the purpose of regulating credit in the interests of trade, industry and agriculture. The Act, in short, deals with: i incorporation, capital, management and business of the bank; ii the central banking functions like issue of bank notes, monetary control, acting as banker to government and banks, lender of last resort; iii collection and furnishing of credit information; iv acceptance of deposits by non-banking financial institutions; v general provisions regarding reserve fund, credit funds, publication of bank rate, audit and accounts; and vi penalties for violation of the provisions of the Act or the directions issued thereunder.

The Banking Regulation Act, was enacted to consolidate and amend the law relating to banking and to provide for a suitable framework for regulating the banking companies. Initially, the Act provided for regulation of banking companies only, but in the Act was amended to cover co-operative banks as well with certain modifications See, Section However, the Act, as provided in Section 3, does not apply to primary agricultural credit societies and co-operative land mortgage banks.

The provisions of the Act are applicable to banking companies in addition to other laws which are applicable to such companies, unless otherwise specifically provided in the Act. Thus, Companies Act, which deals with the incorporation and working of companies is applicable to banking companies except where special provisions are made in the Banking Regulation Act in that regard. The Act regulates entry into banking business by licensing as provided in Section 22 thereof. The Act also puts restrictions on the shareholding, directorship, voting rights and other aspects of banking companies.

There are several provisions in the Act regulating the business of banking such as restriction on loans and advances, rates of interest to be charged, requirement as to cash reserve and maintenance of percentage of assets, etc.

There are provisions regarding audit and inspection and submission of balance sheets and accounts. The Act provides for control over the management of banking companies and also deals with the procedure for winding up of the business of the banks and penalties for violation of its provisions.

In short, the Act deals with: a b c d regulation business of banking companies; control over the management of banking companies; suspension and winding up of banking business; and penalties for violation of the provisions of the Act. The Reserve Bank was constituted under Section 3 of the Reserve Bank of India Act, for taking over the management of currency from the Central Government and carrying on the business of banking in accordance with the provisions of the Act.

Originally, under the RBI Act, the Bank had the responsibility of: a regulating the issue of bank notes; b keeping of reserves for ensuring monetary stability; and c generally to operate the currency and credit system of the country to its advantage. The Reserve Bank is a body corporate having perpetual succession and common seal and shall sue and be sued in its name. The whole capital of the bank is held by the Central Government. The Bank has its central office in Mumbai and offices in Mumbai, Kolkata, Delhi and Chennai, and branches at most of the state capitals and some other cities.

The bank functions under the general superintendence and directions of the Central Board of 9 Directors. The bank has to abide by the directions given by the Central Government in public interest after consultation with the Governor of the bank. The board shall consist of a Governor and not more than four Deputy Governors to be appointed by Central Government and other directors nominated by the Central Government.

Apart from the Central Board, the bank has also local boards situated at Mumbai, Kolkata, Delhi and Chennai, which perform any duty delegated to them by the Central Board.

The Governor has the power of general superintendence and direction of the affairs of the bank and exercise all powers of the bank unless otherwise provided in the regulations made by the Central Board.

The Deputy Governors, Executive Directors and other officers in different grades assist the Governor in the discharge of the Bank s functions. The Act came into force on 6th March The Act has been amended from time to time to meet the demands of changing times. The Act deals with the constitution, powers and functions of the Reserve Bank. It does not directly deal with regulation of the banking system except for Section 42, which provides for cash reserves of scheduled banks to be kept with the Reserve Bank, with a view to regulating the credit system and ensuring monetary stability.

Further, Section 18 of the Act provides for direct discount of bills of exchange and promissory notes when a special occasion arises, making it necessary or expedient for the purpose of regulating credit in the interests of trade, industry and agriculture. The Act, in short, deals with: i incorporation, capital, management and business of the bank: 8 ii the central banking functions like issue of bank notes, monetary control, acting as banker to government and banks, lender of last resort; iii collection and furnishing of credit information; iv acceptance of deposits by non-banking financial institutions; v general provisions regarding reserve fund, credit funds, publication of bank rate, audit and accounts; and vi penalties for violation of the provisions of the Act or the directions issued thereunder.

The Banking Regulation Act, was enacted to consolidate and amend the law relating to banking and to provide for a suitable framework for regulating the banking companies. Initially, the Act provided for regulation of banking companies only, but in the Act was amended to cover co-operative banks as well with certain modifications See, Section However, the Act, as provided in Section 3, does not apply to primary agricultural credit societies and co-operative land mortgage banks.

The provisions of the Act are applicable to banking companies in addition to other laws which are applicable to such companies, unless otherwise specifically provided in the Act. Thus, Companies Act, which deals with the incorporation and working of companies is applicable to banking companies except where special provisions are made in the Banking Regulation Act in that regard.

The Act regulates entry into banking business by licensing as provided in Section 22 thereof. The Act also puts restrictions on the shareholding, directorship, voting rights and other aspects of banking companies. There are several provisions in the Act regulating the business of banking such as restriction on loans and advances, rates of interest to be charged, requirement as to cash reserve and maintenance of percentage of assets, etc.

There are provisions regarding audit and inspection and submission of balance sheets and accounts. The Act provides for control over the management of banking companies and also deals with the procedure for winding up of the business of the banks and penalties for violation of its provisions.

In short, the Act deals with: a regulation business of banking companies; b control over the management of banking companies; c suspension and winding up of banking business; and d penalties for violation of the provisions of the Act.

The Reserve Bank was constituted under Section 3 of the Reserve Bank of India Act, for taking over the management of currency from the Central Government and carrying on the business of banking in accordance with the provisions of the Act. Originally, under the RBI Act, the Bank had the responsibility of: a regulating the issue of bank notes; b keeping of reserves for ensuring monetary stability; and c generally to operate the currency and credit system of the country to its advantage.

The Reserve Bank is a body corporate having perpetual succession and common seal and shall sue and be sued in its name. The whole capital of the bank is held by the Central Government.

The Bank has its central office in Mumbai and offices in Mumbai, Kolkata, Delhi and Chennai, and branches at most of the state capitals and some other cities. The bank functions under the general superintendence and directions of the Central Board of Directors. The bank has to abide by the directions given by the Central Government in public interest after consultation with the Governor of the bank. The board shall consist of a Governor and not more than four Deputy Governors to be appointed by Central Government and other directors nominated by the Central Government.

Apart from the Central Board, the bank has also local boards situated at Mumbai, Kolkata, Delhi and Chennai, which perform any duty delegated to them by the Central Board.

The Governor has the power of general superintendence and direction of the affairs of the bank and exercise all powers of the bank unless otherwise provided in the regulations made by the Central Board. The Deputy Governors, Executive Directors and other officers in different grades assist the Governor in the discharge of the Bank's functions.

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The bank may issue notes of different denominations from Rs. Such notes shall be legal tender at any place in India. The bank is the banker to the Central Government under Section 20 of the Act, and accordingly it is obligatory to undertake banking business for the Central Government. In the case of state governments, their banking business is undertaken by the bank based on agreements as provided in Section 21 A.

Bank provides ways and means of advances to the Central and state governments. These are temporary advances to meet immediate needs when there is interval between expenditure and flow of revenue. The role of the bank as regulator of banking sector is mainly by virtue of the provisions of the Banking Regulation Act, In exercise of the powers under that Act the bank regulates the entry into banking business by licensing, exercises control over shareholding and voting rights of shareholders, exercises controls over the managerial persons, and regulates the business of banks.

The bank also inspects banks and exercises supervisory powers, and may issue directions from time to time in public interest and in the interest of the banking system with respect to interest rates, lending limits, investments and various other matters.

The Reserve Bank is the primary regulator of banks. The government holds the entire capital of the Reserve Bank and appoints the Governor and the mr. Thus, the government can exercise control over banks by influencing decision-making by the Reserve Bank and has also got appellate authority in respect of several matters in which the Reserve Bank has been conferred the power to decide at the first instance.

Similarly, there are also provisions for appeal in respect of cancellation of banking licence under Section 22 and refusal of certificate regarding floating charge on assets Section 14A. The government has also the power to notify other forms of business which a bank may undertake under Section 6 1 o of the Act.

Rule-making powers under Sections 52 and 45Y are vested in the Central Government. There are also other provisions under which the Central Government exercises powers as under: a Approval for formation of subsidiary for certain business under Section 19; b Notification with reference to accounts and balance sheet under Section 29; c Issue of direction for inspection of banks under Section 35; d Power to acquire undertakings of banks Section 36AE ; e Appointment of court liquidator; f Suspension of business and amalgamation of banks under Section The above provisions confer wide powers on the Central Government to regulate banks.

These are in addition to the powers conferred on the government as majority shareholder or full owner of public sector banks under the statutes constituting them. A co-operative bank is a co-operative society engaged in the business of banking and may be a primary Co-operative bank, a district central co-operative bank or a state co-operative bank.

Cooperative banks operating in one state only are registered under the State co-operative Societies Act concerned.

The formation of such banks as well as their management and control over personnel is regulated by the co-operative law of the state. The Registrar of co-operative societies under the Co-operative Societies Act exercises a wide range of powers on co-operative societies from registration to winding up. In the case of co-operative banks operating in more than one state, the Multi-State Co-operative Societies Act, is applicable.

In that case, the Registrar appointed by the Central Government takes the place of the Registrar appointed by the State Government in other cases. With the introduction of Section 56 in the Banking Regulation Act, with effect from , cooperative banks have come under the regulatory purview of the Reserve Bank. While the formation and management of co-operative societies operating in one state only including those conducting banking business are under the control of the State Government, licensing and regulation of banking business rests with the Reserve Bank.

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Thus, there is dual control of State Governments and the Reserve Bank over these banks. In the case of co-operative banks which are registered under the Deposit Insurance and Credit Guarantee Corporation Act, the Reserve Bank has the power to order their winding up. The circumstances in which Reserve Bank may require winding up are mentioned in Section 13D of the Act.State governments have no control over co-operative banks.

Such deposits may be repayable on demand or may be for a period of time as agreed to, by the banker and the customer, and may be repayable by cheque, draft or otherwise. As provided in Section 6 of the Banking Regulation Act, banks may undertake certain non-banking business in addition to the business of banking. Banks are, however, prohibited from undertaking any trading activities. Further, accepting deposits from the "public" implies that a banker accepts deposits from anyone who offers money for such purpose.

Chandak, Advocate, High Court, Mumbai. Acceptance of Deposits by Non-banking Entities: There are also non-banking companies, firms and other unincorporated associations of persons and individuals who accept deposits from the public.

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