Banking Regulation Act, 1949 :
The Banking Regulation Act, 1949 is one of the important legal frameworks. Initially the Act was passed as Banking Companies Act,1949 which was changed to Banking Regulation Act, 1949. Along with the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949 provides the guidelines to banks covering wide range of areas. Some of the important provisions of the Banking Regulation Act, 1949 are listed below :
– The term banking is defined as per Section 5(b), to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.
– Section 5(c) defines a banking company as any company which handles the business of banking in India.
– Section 5(f) distinguishes between the demand liabilities and time liabilities.
– Section 6(1) deals with forms of business in which a banking company may engage.
– Section 7 specifies that no company other than a banking company shall use as part of its name or in connection with its business any of the words “bank”, “banker” or “banking” and no company shall carry on the business of banking in India unless it uses as part of its name at least one of such words.
– Banking Regulation Act through a number of sections restricts and prohibits certain activities for a bank.
For example:
(i) Section 8 prohibits trading by prescribing that notwithstanding anything contained in section 6 or in any contract, no banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by it, or engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business as is referred in clause (i) of subsection
(1) of section 6.
(ii) Section 9 prohibits disposal of non-banking assets by providing that notwithstanding anything contained in section 6, no banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of this Act, whichever is later or any extension of such period as in this section provided, and such properly shall be disposed of within such period or extended period, as the case may be.
(iii) Section 10 prohibits employment of managing agents and restrictions on certain forms of employment. Further, section 16 prohibits common directors.
(iv) Section 14 and 14A prohibits creation of charge on unpaid capital and floating charge on assets respectively. Moreover, section 15 lays down restrictions as to payment of dividend and section 20 lays restrictions on loans and advances.
(v) Section 19 restricts banking company from forming any subsidiary company except a subsidiary company formed for the purposes specified under section 19(1). Also, section 23 restricts opening of new, and transfer of existing, places of business.