Banking Regulation Act,

1949
 Origin of the Act
No separate legislation till 1949.
Banks were under the control of Indian
companies act.
Due to
Mushrooming growth in banks with inadequate capital
Dishonest management
Speculative investment
Appointment of incompetent directors for long
periods
Poor liquidity of funds

Initiated the need of a separate banking act

 Origin of the Act
A bill was introduced in March 1948.
Passed in the parliament in February
1949.
Came to force in March1949.
Act was originally known as banking
companies act 1949
Now known as Banking Regulations
Act 1949.
 Provisions of the Act
Definition of banking
Business of banking company and prohibited business
Capital requirements
Management
Maintenance of liquid assets
Licensing of banks
Opening of new branches
Provisions regarding loans and advances
Inspections of banks
Powers of reserve bank of India
Returns to be submitted
Acquisition of business
Winding up of banking companies
Amalgamation of banking companies
Miscellaneous penalties
Application of the act to cooperative banks
 Definition of Banking
Defined in section (b) of the act.
accepting, for the purpose of
lending or investment of deposits, of
money of 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 transacts
business of banking in India.
 Kinds of Business
Stated in section 6 of the act.
Main functions (usual banking activities)
Subsidiary functions
Main functions
Borrowing, raising or taking up money
Lending money with or without security
Granting and issuing letter of credit of
various kinds, travellers cheque
Collection and transmission of money
and securities.
 Subsidiary functions and services

Managing, selling and realising any

property which may come into its
possession in satisfaction of any of
its claim.
Pensions, insurance.
Acquisition and construction.
Venture capital
 Capital requirements

A minimum paid up capital of Rs.100

crore for setting up a new company.
Raised to Rs. 300 crore within 3
years of commencement.
 Management
Section 10(A) provides that atleast 51% of the
board of directors of the banking company must
consist of persons who have special knowledge in
Economics,
Banking
Agricultural and rural economy
Law
They should not be proprietors of any trading,
commercial or industrial concern.
Chairman should be a professional banker. His
appointment must be subject to approval from
RBI.