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GA Topper Series: Banking Regulations Act

Banking Regulations Act 1949

Under this act, RBI regulates the banks in India along with the RBI act 1934.

Historical background

It was enacted on 16 March 1949. Earlier it did not cover cooperative banks but in 1966 it was extended to cooperative banks under section 56 

Banking Regulations Act 1949 covers

  1. Scheduled banks
  2. Small finance banks
  3. RRBs
  4. Payment banks
  5. Local area banks
  6. Cooperative banks

Banking Regulations Act 1949 does not cover

  • a primary agricultural credit society.
  • a co-operative society whose primary object and principal business is providing of long-term finance for agricultural development.
  • Land development bank

Objectives of Banking Regulations Act 1949

  • To safeguard the interest of depositors; 
  • To develop banking institutions on sound lines
  • To attune the monetary and credit system to the larger interests and priorities of the nation.

What is Banking?

“Banking” means 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.

Prohibition on trading 

No banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realization 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;

Important note: SLR provisions come under the banking regulation act and CRR provisions come under the RBI act. 

Important provisions of the Act

Section 5(1)b: Banking Definition

Section 8: Prohibition on trading

Section 16: Prohibition of common directors

Section 17: Reserve Fund 

Section 18: Cash reserve

Section 35A: Power of the Reserve Bank to give directions 

Section 35AA: Power of Central Government to authorize Reserve Bank for issuing directions to banking companies to initiate the insolvency resolution process

Section 35AB: Power of Reserve Bank to issue directions in respect of stressed assets

Also Check:

GA Topper Series: Banking Regulations Act_50.1

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