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banking_law:powers_of_the_reserve_bank_74517102019

Powers of the Reserve Bank

1. Election of New Directors (Sec. 12A): The Reserve bank may, by order, require any ban king company to call a general meeting of the shareholders of the company within such time, not less than 2 months from the Date of the order, as may be specified in the order or within such further time as the Reserve bank may allow in this behalf, to elect, in accordance with the voting rights permissible under this Act, fresh directors.

2. Cash Reserve (Sec. 18): Under Section 42 of the Reserve Bank of India Act, every scheduled bank has to maintain a sum equal to at least 3% of its time and demand liabilities in India as cash reserve with the RBI. The Reserve bank has the power to increase the percentage up to 20% by a notification in the government Gazette.

3. Licensing of Banking companies (Sec. 22): Prior to granting license to a banking company, the Reserve bank may require to be satisfied by an inspection of the books of the banking company or all or any of the following conditions should be fulfilled, namely:

  1. What the company is or will be in a position to pay its present or future depositors in full as they become due
  2. That the affairs of the company are not being, or are not likely to be conducted in a manner detrimental to the interest of the depositors.
  3. In the case of a company incorporated outside India that the carrying on of banking business by such company in India will be in the public interest and that the government or law of the country in which it is incorporated does not discriminate in any way against banking companies registered in India.

Cancellation of the License: The license of any banking company may be cancelled by the Reserve Bank due to the following reasons:

  1. If the company ceases to carry on banking business in India; or
  2. If any of the conditions imposed by the Reserve bank are not fulfilled.

Any banking company aggrieved by the decision of the Reserve bank cancelling a license may, within thirty days from the date on which such decision is communicated to it, appeal to the central government.

4) Opening of New and Transfer of Existing place of Business (Sec. 23): Without obtaining prior approval of the Reserve Bank:

  1. No banking company shall open a new place of business in India or change otherwise than within the same city, town or village, the location of an existing place of business situated in India.
  2. No banking company incorporated in India shall open a new place of business outside India or change, otherwise than within the same city, town or village in any country or area outside India, location of an existing place of business situated in that country or area.

The permission of the Reserve bank is not necessary where a banking company opens a temporary place of business for a period not exceeding one month, within a city, town or village within which the company has already a place of business, for the purpose of affording the banking facilities to the public on the occasion of an exhibition, a conference or a mela or any other like occasion.

5) Power to call for information relating to the business of any banking company [Sec. 27(2)] : Sec. 28 gives power to the Reserve Bank to publish such information if it considers it proper to do so in the public interest. The Reserve bank can at any time a banking company to furnish within the specified time, with such statements and information relating to business of the banking company as the Reserve bank may consider necessary.

6) Power of Inspection (Sec. 35) : The Reserve Bank may at any time, and shall at the direction of the central government inspect a banking company and its books and accounts to find out whether or not the affairs of the banking company are conducted in the interest of the depositors. The central government may after giving reasonable notice to the banking company, publish the report submitted by the Reserve Bank of such portion thereof as may appear necessary

7) Power to give Directions (Sec. 34) : The Reserve Bank may from time to time issue directions to banking companies generally or to any banking company particularly. The Reserve Bank shall do so when it deems it necessary to issue such directions :

  1. in the public interest; or
  2. to secure the proper management of any banking company generally.
  3. to prevent the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interests of the banking company;

8) Reserve Bank's approval necessary for the amendment of provisions relating to appointment of managing directors (Sec. 35B) : The appointment or reappointment of a managing or a whole time director, manager or chief executive officer, by whatever name called, shall not have any effect unless it is made with the previous approval of the Reserve Bank.

9) Power of Reserve Bank to appoint additional directors (Sec. 36AB) : The Reserve Bank, if considers necessary for the protection of the interest of depositors, from time to time may appoint additional directors but the number should not exceed five or one third of the maximum strength fixed for the Board by the articles whichever is less. Additional directors shall hold office at the pleasure of the Reserve bank not exceeding three years at a time.

10) Power of Reserve Bank to remove managerial and other persons from office (Sec. 36AA): For preventing the affairs of the banking company, the Reserve bank may remove any director, chief executive officer by writing an order the order shall contain reasons for his removal and the date from which it is effective. Reasonable opportunity should also be given to such a person for explaining his position before such order is actually passed against him. Such person, within 30 days, can appeal to central government.

Further powers and functions of the Reserve Bank (Sec. 36)

  1. It may on a request being made, assist in a proposal for the amalgamation of banking companies concerned.
  2. It may assist any banking company by means of the grant of a loan or advance to it.
  3. It shall make an annual report to the central government on the trend and progress of the banking in the country. It shall also include in such report its suggestions for the strengthening of banking business throughout the country.


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Created on 2020/10/19 23:12 by • Last modified on 2020/11/07 18:31 (external edit)