The relevance of the banking laws in India and the suggested amendments

The Banking Laws (Amendment) Bill 2011 was introduced in order to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The said Bill has been passed by both the Houses of Parliament…..

  • To create a Depositor Education and Awareness Fund by utilizing the inoperative deposit accounts;
  • To provide prior approval of RBI for acquisition of 5% or more of shares or voting rights in a banking company by any person and empowering RBI to impose such conditions as it deems fit in this regard;
  • To empower RBI to collect information and inspect associate enterprises of banking companies;
  • For persons who wish to acquire five percent or more of the share capital of a banking company, it will be mandatory to obtain prior approval from the RBI.
  • The RBI will also have the power to impose conditions while granting approval for acquisition of the share capital.
  • To empower RBI to supersede the Board of Directors of banking company and appointment of administrator till alternate arrangements are made;
  • To provide for primary cooperative societies to carry on the business of banking only after obtaining a license from RBI;
  • To provide for special audit of cooperative banks at instance of RBI by extending applicability of Section 30 to them;
  • Banking companies engage in various financial activities through the medium of associate enterprises. To ensure better regulation of such activities the Bill confers powers on the RBI to call for information and returns from such associate enterprises and also inspect them if required.  
  • Under the regulations of the Banking Regulations Act, 1949, the RBI has the power to remove a director or any other officers of the banking company.  The Statement of Objects and Reasons of the Bill states that such power is not adequate if the entire Board of Directors is working against the interest of the depositors and the company.  This Bill proposes to confer powers on the RBI to supersede the Board of Directors of a banking company for not more than 12 months and appoint an administrator for the managing the company during that period.
  • The Negotiable Instruments Act, 1881 requires all banking companies to maintain a certain amount of cash as reserve ratio (CRR) on every alternate Friday of every month.  If a banking company fails to maintain the prescribed minimum amount as CRR on any day, the Bill empowers the RBI to levy penal interest on the defaulter.
  • The existing Competition Act, 2002 has given the power to the Competition Commission of India to regulate mergers and acquisitions.  The Bill proposes to exempt combinations of banking companies from seeking such permission as these are regulated by RBI. 

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