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1 e-Booklet on RBI & Banking Regulation Act

Preface
Dear Readers
This e-Book is a small part of our educational series for Bankers apart from our other periodicals
which contains brief note on RBI Act and Function of RBI and the Banking Regulation Act. The booklet
may be useful for those who are preparing for Bank promotion examinations.
This Book is a publication by ‘The Banking Updates’ who also publish the Monthly Magazine “The
Banking & Financial Updates” especially for the Bankers for various promotional examinations and
for knowledge upgradation.

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Dt. 25.01.2024
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2 e-Booklet on RBI & Banking Regulation Act

RB I ACT & IMPORTANT FUNCTIONS OF RB I

Important Sections of RBI Act 1934

(As amended by the Finance Act, 2018)

Section Details
4 The Paid-up capital of RBI is Rs.5.00 crores.
7 The Central Government may from time to time give such directions to the Bank as it may, after
consultation with the Governor of the Bank, consider necessary in the public interest. The general
superintendence and direction of the affairs and business of the Bank shall be entrusted to a
Central Board of Directors.
17 Authorized for accepting of money on deposit without interest from and the collection of money
for Central Government and State Governments.
17(5) Extend Ways and Means advances to GoI for a period not exceeding three months to augment the
mismatch in gap between flow of revenue as per plan in budget and its actual receipt.
20 Obligation of RBI to transact Government business.
21 Bank to have the right to transact Government business in India.
21A Bank to transact Government business of States on agreement.
22 Sole right to issue Bank notes.
23 The Issue Department shall not issue bank notes to the Banking Department or to any other
person except in exchange for other bank notes or for such coin, bullion or securities as are
permitted by this Act to form part of the Reserve.
24 Denomination of Bank notes from Rs.2/- to Rs.10000/- can be issued by RBI.
(* Rs.1/- notes and coins are issued by GoI under signature of Finance Secretary)
27 The Bank shall not re-issue bank notes which are torn, defaced or excessively soiled.
29 RBI is exempt from stamp duty on bank notes.
31 No person in India other than RBI and the Central Government shall draw, accept, make or issue
any bill of exchange, hundi, promissory note or engagement for the payment of money payable to
bearer on demand.
33 Assets of the issue Department: Assets of issue department shall consist of Gold Coin, Gold
Bullion, Foreign Securities, rupee coins and rupee securities with an aggregate amount not less
than its liabilities.
The aggregate value of Gold Coin, Gold Bullion and foreign securities held as assets shall not at any
time less than Rs.200.00 crores and the aggregate value of Gold Coin and Gold Bullion at any time
shall not be less than Rs.115.00 crores.
Of the gold coin and gold bullion held as assets, not less than seventeen-twentieths shall be held in
India.
40 Transactions in foreign exchange.
42 (1) Maintenance of CRR by scheduled Commercial Banks with RBI.
45A Collection and furnishing of credit information.
45ZB The Monetary Policy Committee (MPC) constituted by the Central Government under Section
45ZB determines the policy interest rate required to achieve the inflation target.
48 Exemption of RBI from income-tax and super-tax.
49 Publication of bank rate: The Bank shall make public from time to time the standard rate at which

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it is prepared to buy or re-discount bills of exchange or other commercial paper eligible for
purchase under this Act.

Functions of RBI

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank a to regulate the
issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to
operate the currency and credit system of the country to its advantage; to have a modern monetary policy
framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in
mind the objective of growth.

Acts that give Authority to RBI as Regulator:

 RBI Act 1934 empowers RBI as Central Bank of the Country.

 Banking Regulation act 1949 empowers RBI to be the regulator of Banking system in the country.
 Payment and Settlement act 2006 empowers RBI as regulator of Payment & Settlement system.
 Foreign Exchange Management Act 1999 authorizes RBI as regulator, supervisor and controller of
Foreign Exchange.

The functions of the Reserve Bank today can be categorised as follows:

 Monetary policy and credit policy.
 Regulation and supervision of the banking and non-banking financial institutions, including credit
information companies.
 Regulation of money market, forex and government securities markets as also certain financial
derivatives.
 Debt and cash management for Central and State Governments.
 Management of foreign exchange reserves.
 Banker to banks
 Banker to the Central and State Governments
 Oversight of the payment and settlement systems
 Currency management
 Developmental role
 Research and statistics.

Printing of Currency notes:

There are 4 currency note printing press in india located in Nasik (Maharastra), Dewas (MP) owned by Security
Printing and Minting Corporation of India, a GoI undertaking and at Mysore (Karnataka), Salboni (WB) owned by
Bharitya Reserve Bank Mudran Ltd, a wholly owned subsidiary of RBI.

Coins and One-rupee notes:

As per Coinage act 2011, coins are issued by GoI. The maximum denomination of coins which can be issued is
Rs.1000/-. The minimum denomination of coins in circulation at present is 50 paise. One rupee notes are treated
as coins and issued by GoI under signature of Secretary, Ministry of Finance.
Coins are minted in four mints located in Alipore (Kolkata), Noida(UP), Mumbai and Hyderabad.

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Monetary & Credit Policy:

Monetary policy refers to the use of monetary instruments under the control of the central bank to regulate
interest rates, money supply and availability of credit with a view to achieve the ultimate objective of economic
policy.

The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of
growth. Price stability is a necessary precondition to sustainable growth. Section 45ZB of the amended RBI Act,
1934 provides for an empowered six-member monetary policy committee (MPC) to be constituted by the Central
Government. RBI issues monetary and credit policy 6 times in a year.

In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the
implementation of the flexible inflation targeting framework.

The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation
with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified in the Official
Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March
31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.

Repo Rate:
The interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of
government and other approved securities under the liquidity adjustment facility (LAF).

Reverse Repo Rate:

The interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the
collateral of eligible government securities under the LAF.

Liquidity Adjustment Facility (LAF):

The LAF consists of overnight as well as term repo auctions. Progressively, the Reserve Bank has increased the
proportion of liquidity injected under fine-tuning variable rate repo auctions of range of tenors. The aim of term
repo is to help develop the inter-bank term money market, which in turn can set market-based benchmarks for
pricing of loans and deposits, and hence improve transmission of monetary policy. The Reserve Bank also
conducts variable interest rate reverse repo auctions, as necessitated under the market conditions.

Marginal Standing Facility (MSF):

A facility under which scheduled commercial banks can borrow additional amount of overnight money from the
Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest.
This provides a safety valve against unanticipated liquidity shocks to the banking system.

Corridor: The MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted
average call money rate.

Bank Rate:
It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers.
The Bank Rate is published under Section 49 of the Reserve Bank of India Act, 1934. This rate has been aligned to
the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate
changes.

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Cash Reserve Ratio (CRR):

This is the average daily Cash balance that a bank is required to maintain with the Reserve Bank as a share of such
per cent of its Net demand and time liabilities (NDTL). With effect from 01.04.2007, RBI can prescribe CRR for
scheduled commercial Banks without any floor rate or ceiling rate. Banks are required to maintain CRR based on
their NDTL as on last Friday of second preceding fortnight. The actual balance on any day of the fortnight may be
more or less than the required balance but should not fall below 90% of the required average daily cash balance.
With effect from 31.03.2007 RBI will not pay any interest on CRR Balance. In case of default in CRR balance in any
day, penal interest charged @ Bank Rate+3.00% p.a on the amount of shortfall and if the shortfall continuous for
next succeeding day, penal interest will be recovered @ Bank Rate + 5.00% p.a. In cases of shortfall in
maintenance of CRR on average basis during a fortnight, penal interest will be recovered as envisaged in sub-
section (3) of Section 42 of Reserve Bank of India Act, 1934 which states that If the average daily balance during
any fortnight is below the minimum prescribed CRR, such Scheduled bank shall be liable to pay to RBI in respect
of that fortnight penal interest at a rate of three percent, above the bank rate on the amount by which such
balance with the Bank falls short of the prescribed minimum, and if during the next succeeding fortnight, such
average daily balance is still below the prescribed minimum the rates of penal interest shall be increased to a rate
of five per cent, above the bank rate in respect of that fortnight and each subsequent fortnight during which the
default continues. CRR to be reported to RBI through Form-A, to be sent fortnightly to RBI.

Statutory Liquidity Ratio (SLR):

The share of NDTL that a bank is required to maintain in safe and liquid assets, such as, unencumbered
government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking
system for lending to the private sector. SLR can be kept in the form of (a) Cash With Bank (b) Cash Balance with
other Banks (c) Excess Cash Balance with RBI (d) Gold valued at not exceeding the current market price (e)
Investment in SLR securities which includes Unencumbered dated securities issued by Govt. of India, Treasury
Bills of Govt. of India and State Development Loans. In case of default in SLR in any day, penal interest charged @
Bank Rate+3.00% p.a on the amount of shortfall and if the shortfall continuous for next succeeding day, penal
interest will be recovered @ Bank Rate + 5.00% p.a. The penalty payable shall be paid within a period of fourteen
days from the date on which a notice issued by RBI demanding payment of the same is served on the banking
company. For calculation of SLR, Banks send monthly Statement in Form-VII to RBI. RBI is free to fix the minimum
SLR. However, it can be increased up to a maximum 40% of NDTL.

For calculation of NDTL for CRR & SLR, the following are excluded from liabilities.
 Paid up capital, reserves, credit balance in P&L account, amount availed as refinance from RBI, NABARD
etc.
 Provision for income tax.
 Amount received from DICGC claim and pending adjustment.
 Amount received from ECGC by invoking guarantee.
 Interbank liability up to 14 days.
 For calculation of CRR, Inter Bank Term Deposits/ liabilities of 15 days and above and up to One Year are
also not to be included in NDTL.
 Further Banks are exempted for maintaining CRR on Credit Balance in ACU accounts ( In USD), Demand
and Time Liabilities in respect of their Off Shore Banking Units.
 Liabilities on account of CBLO (Collateralized Borrowing and Lending Obligations) are included in NDTL.

Open Market Operations (OMOs):

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These include both, outright purchase and sale of government securities, for injection and absorption of durable
liquidity, respectively.

Market Stabilization Scheme (MSS):

This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature
arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills.
The cash so mobilized is held in a separate government account with the Reserve Bank.

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B ANKING REGULATION ACT -1949

(REGULATION (AMENDME NT) ACT, 2017)
T HE B A NK I NG R E G U LAT I O N ( A M E N DM E NT ) AC T , 20 2 0

It extends to the whole of India applicable to all Banking Companies except to primary agricultural credit society,
a co-operative land mortgage bank.

Section-4: Power to suspend operation of Act:

 The Central Government, may by notification in the Official Gazette suspend for such period, not exceeding
sixty days, as may be specified in the notification, the operation of all or any of the provisions of this Act,
either generally or in relation to any specified banking company.
 In a case of special emergency, the Governor of the Reserve Bank, or in his absence a Deputy Governor may,
exercise the powers of the Central Government so however that the period of suspension shall not exceed
thirty days, and the order shall, as soon as may be, be published in the Gazette of India.
 The Central Government may, by notification in the Official Gazette, extend from time to time the period of
any suspension ordered for such period, not exceeding sixty days at any one time, as it thinks fit so however
that the total period does not exceed one year.

Section-5 (a): Approved Security: Means the securities issued by the Central Government or any State
Government or such other securities as may be specified by the Reserve Bank from time to time.

Section-5 (b): 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.

Section-5 (c): Banking Company: Means any company which transacts the business of banking in India.

Section-5 (f): Demand Liability: Means liabilities which must be met on demand, and "time liabilities" means
liabilities which are not demand liabilities.

Section-5 (ja): Regional Rural Bank: Means a regional rural bank established under section 3 of the Regional
Rural Banks Act, 1976.

Section-5 (n): Secured loan or advance: Means a loan or advance made on the security of assets the market
value of which is not at any time less than the amount of such loan or advance; and "unsecured loan or advance"
means a loan or advance not so secured. (* As per RBI guidelines, an advance where the value of security is not
more than 10% of the outstanding is an unsecured advance)

Section-6: Forms of business in which banking companies may engage: In addition to the business of
banking, a banking company may engage in any one or more of the following forms of business, namely:-
borrowing, raising money, lending money, discounting, buying, selling, collecting and dealing in bills of exchange,
the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange, acting as an agent
for government etc.

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Section-7: Use of words "bank", "banker", "banking" or "banking company: No company/firm 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" .

Section-8: Prohibition of 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.

Section-9: Disposal of non-banking assets: 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. Reserve Bank may in any particular case extend
the aforesaid period of seven years by such period not exceeding five years in the interests of the depositors of the
banking company.

Section-10A: Board of Directors to include persons with professional or other experience: As per Section
10A(2), Not less than fifty-one per cent, of the total number of members of the Board of Directors of a banking
company shall consist of persons, who shall have special knowledge or practical experience in respect of one or
more of the following matters, namely (i) accountancy, (ii) agriculture and rural economy, (iii) banking, (iv) co-
operation, (v) economics, (vi) finance, (vii) law, (viii) small-scale industry, (ix) any other matter the special
knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be useful to the
banking company provided that out of the aforesaid number of Directors, not less than two shall be persons
having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or
small- scale industry.
No Director of a banking company, other than its Chairman or whole-time Director, by whatever name called, shall
hold office continuously for a period exceeding eight years.

Section-11: Requirement as to minimum paid-up capital and reserves:

 Every Banking Company, shall, after the expiry of three years from commencement of business or of such
further period not exceeding one year allowed by RBI should meet the minimum capital requirement.
 In the case of a banking company incorporated outside India-the aggregate value of its paid-up capital and
reserves shall not be less than fifteen lakhs of rupees and if it has a place or places of business in the city of
Bombay or Calcutta or both, the requirement will be twenty lakhs of rupees. The banking company shall
deposit and keep deposited with the Reserve Bank either in cash or in the form of unencumbered approved
securities, or partly in cash and partly in the form of such securities for the minimum capital and an amount
equal to 20% of its profit in respect of all business transacted through its branches in India.
 In the case of any banking company not incorporated outside India, the minimum paid up capital and reserve
should be Rs.5.00 Lakh Rupees ( if it has places of business in more than one State), Rs.10.00 Lakh Rupees (if
any such place or places of business is or are situated in the city of Bombay or Calcutta or both). If it has all its
places of business in one State none of which is situated in the city of Bombay or Calcutta, one lakh of rupees
in respect of its principal place of business, plus ten thousand rupees in respect of each of its other places of
business situated in the same district in which it has its principal place of business, plus twenty-five thousand
rupees in respect of each place of business situated elsewhere in the State otherwise than in the same district.
Subject to maximum capital and reserve requirement of Rs.5.00 Lakh Rupees and Rs.50000/- if the Bank is
having only one place of business.

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Section:12. Regulation of paid-up capital, subscribed capital and authorized capital and voting rights of
shareholders:

No banking company shall carry on business in India, unless it satisfies the following conditions, namely:

 That the subscribed capital of the company is not less than one-half of the authorized capital, and the
paid-up capital is not less than one-half of the subscribed capital. i.e the ratio of Authorized, Subscribed
and paid up capital must be minimum 4:2:1
 No shareholder in a banking company shall exercise voting rights in excess of ten per cent of the total
voting rights of all the shareholders of the banking company. [Provided that the Reserve Bank may
increase, such ceiling to twenty-six per cent.]
 No person shall, except with the previous approval of the Reserve Bank, acquire shares of a banking
company or voting rights therein by him or his relative or associate enterprise or person acting in concert
with him, of five per cent or more of the paid-up share capital of such banking company or five per cent or
more of the voting rights in such banking company.

Section:13: Restriction on commission, brokerage, discount, etc. on sale of shares: No banking company
shall pay by way of commission, brokerage, discount in any form in respect of any shares issued by it, any amount
exceeding 2.50% of the price at which the said shares are issued.

Section:17: Reserve Fund: A Banking company is required to transfer 20% of its profits to reserve fund before
declaring dividend. As per current guidelines, RBI has increased the same to 25%.

Section:18: Defines Cash Reserve requirement for Non-Scheduled Banks.

Section:19 (2) : No banking company shall hold shares in any company, whether as pledgee, mortgagee or
absolute owner, of an amount exceeding thirty per cent of the paid-up share capital of that company or thirty per
cent of its own paid-up share capital and reserves, whichever is less. (RBI has reduced it to 10%)

Section:20: Restrictions on Loans and Advances:

Section :20 (1.a): No banking company shall grant any loans or advances on the security of its own shares.
Section :20 (1.b): No banking company shall without approval of RBI grant any loans or advances to any of its
directors, in any firm where any of the director is partner, employee or guarantor or in any company where he /
she is holding substantial interest.
Section:20A: a banking company shall not, except with the prior approval of the Reserve Bank, remit in whole or
in part any debt due to it by any of its directors, in any firm where any of the director is partner, employee or
guarantor or in any company where he / she is holding substantial interest.

Section:21: Power of Reserve Bank to control advances by banking companies: (Selective Credit Control).
Reserve Bank of India in the interest of public may direct Banks on restriction on lending against certain
commodities, maintenance of minimum margin, ceiling on limit or charging of minimum ROI etc.
Section 21A: Rate of interest charged by Banks is not to be subject to scrutiny by courts.

Section:22: Licensing of banking companies: No Banking company shall commence business without obtaining
license from Reserve Banking of India. Reserve Bank may cancel license of a Banking Company Under Section
22(4) under certain conditions. Any banking company aggrieved by the decision of the Reserve Bank cancelling a

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license under this section may, within thirty days from the date on which such decision is communicated to it,
appeal to the Central Government (U/s 22(5))

Section:23: Licensing of Bank Branches: Prior permission from RBI is required for opening any new Branch,
office or transfer of existing place of business (except for one month). Now RBI has permitted Banks to open
Branches without its permission. (For latest details refer Branch Authorization Policy)

Section:24: Banks are required to maintain minimum Statutory Liquidity Ratio as prescribed by RBI.

Section:25: Assets in India: The assets in India of every banking company at the close of business on the last
Friday of every quarter or, if that Friday is a public holiday under the Negotiable Instruments Act, 1881 at the
close of the business on the preceding working day, shall not be less than seventy-five percent of its demand and
time liabilities in India.

Section:26: Return of unclaimed deposits: Every banking company shall, within thirty days after the close of
each calendar year, submit a return in the prescribed form and manner to the Reserve Bank as at the end of such
calendar year of all accounts [in India] which have not been operated for ten years provided that in the case of
money deposited for a fixed period the said term of ten years shall be reckoned from the date of the expiry of such
fixed period.
RBI has launched ‘The Depositor Education and Awareness Fund Scheme 2014 (DEAF)’ under Section 26(A) of BR
Act. Under which unclaimed deposits for 10 Years or more to be remitted by Banks to RBI within a period of 3
months from the expiry of the said period of ten years to be credited to this fund. Provided that it shall not prevent
a depositor or claimant to claim his deposit or operate his account even after the expiry of said period of ten years
and the Bank shall be liable to repay such deposit or amount at such rate of interest as may be specified by the
Reserve Bank in this behalf (Which is 3.50% p.a at present).

Section:29: Accounts and balance-sheet: Every Banking Company shall prepare Balance Sheet and P&L
Statement as on the last day of March every year in the format given in Schedule -III of the Act.

Section:30: Audit: The financial statements (Balance Sheet/P&L) are subjected to audit by a person duly
qualified.

Section:31 Submission of returns: The accounts and balance-sheet together with the auditor's report shall be
published in the prescribed manner and three copies thereof shall be furnished as returns to the Reserve Bank
within three months from the end of the period to which they refer. (Reserve Bank may extend by a further period
not exceeding three months).

Section 35 – Inspection: The act empowers RBI to conduct to inspection of Banks.

Section 35A – The act empowers RBI to issue directions to Banks in public interest or in the interest of Banking
policy.

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

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

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Section 35B - Amendments of provisions relating to appointments of Managing Directors, etc., to be

subject to previous approval of the Reserve Bank:

Section 36 – Power of Reserve Bank to caution or prohibit banking companies against entering into any
particular transaction or class of transactions, and generally give advice to any banking company in proposals for
the amalgamation of such banking companies, give assistance to any banking company by means of the grant of a
loan or advance to it.

Section-36AA: RBI has the power to remove any managerial or other persons of a Bank.

Section 36AB - Power of Reserve Bank to appoint additional Directors.

Section- 36ACA. Supersession of Board of Directors in certain cases: Where the Reserve Bank is satisfied, in
consultation with the Central Government, that in the public interest or for preventing the affairs of any banking
company being conducted in a manner detrimental to the interest of the depositors the Reserve Bank may
supersede the Board of Directors of such banking company for a period not exceeding six months provided that
the period of supersession of the Board of Directors may be extended from time to time, so, however, that the total
period shall not exceed twelve months.

Section-44(A): Amalgamation of Banking Companies: The scheme of amalgamation to be first approved by

General Body by 2/3rd majority and then approval of RBI is required.

Section-45(Y): Preservation of records: Central Government in consultation with RBI can frame rules on
preservation of various records, books of accounts etc.

Section-45(Z): Contains rules on return of paid instruments to customers keeping a true copy with Bank.
Customers taking the paid cheques from Banks are required to preserve the same for 8 years.

Section-45ZA & ZB regarding nomination facility in deposit accounts.

Section-45ZC & ZD regarding nomination facility for articles kept in safe custody.
Section-45ZE & ZF regarding nomination facility in case of lockers.

Section:52. Power of Central Government to make rules: The Central Government may, after consultation with
the Reserve Bank, make rules and all such rules shall be published in the Official Gazette.

THE BANKING REGULATION (AMENDMENT) ACT, 2020:

The Banking Regulation (Amendment) Act, 2020 come into force on the 26th day of June, 2020.
This Act shall not apply to-- (a) a primary agricultural credit society; or (b) a co-operative society whose principal
business is providing of long term finance agricultural Credit if such society does not use as part of its name, the
words "bank", "banker" or "banking" and does not act as drawee of cheques.

The highlights of the bill are:

 Co-operative banks are exempted from several provisions of the Banking Regulation Act, 1949. The Bill
applies some of these provisions to them, making their regulation under the Act similar to that of commercial
banks.
 Co-operative banks may raise equity or unsecured debt capital from the public subject to prior RBI approval.

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 RBI may prescribe conditions on and qualifications for employment of Chairman of co-operative banks. RBI
may remove a Chairman not meeting ‘fit and proper’ criteria and appoint a suitable person. It may issue
directions to reconstitute the Board of Directors in order to ensure sufficient number of qualified members.
 RBI may supersede the Board of Directors of a co-operative bank after consultation with the state
government.
 The Bill allows RBI to undertake reconstruction or amalgamation of a bank without imposing a moratorium.
 The words “multi-State co-operative bank”, has been substituted as “co-operative bank”.
Prescription of qualifications for management: Co-operative banks are excluded from provisions of the BR Act
with respect to conditions on employment and qualifications for the Chairman and Board of Directors. The Bill
provides that co-operative banks cannot employ as Chairman, someone who is insolvent or has been convicted of
a crime involving moral turpitude, among other restrictions. It empowers RBI to remove the Chairman if he is not
fit and proper and appoint a suitable person if the bank does not do so.

The Bill provides that the Board of Directors must have not less than 51% of members who have special
knowledge or practical experience in areas such as accountancy, banking, economics or law among others. It
allows RBI to direct a bank to reconstitute the Board if it does not conform to the requirements. If the bank does
not comply, RBI may remove individual directors and appoint suitable persons.
Supersession of Board of Directors: Under the BR Act, RBI is empowered to issue an order to supersede the
Board of Directors of multi-state co-operative banks for a maximum period of five years and appoint an
Administrator. Multi-state co-operative banks are co-operative banks with operation in two or more states, and
are registered under the Multi-State Co-operative Societies Act, 2002. For other co-operative banks, RBI may
approach the RCS to supersede the Board. The Bill extends RBI’s power to supersede Board of Directors to all co-
operative banks. In case the bank is registered with a state RCS, RBI may issue the order in consultation with the
concerned state government, seeking its comments within such period as specified by RBI.
Audit and winding up: Under the Bill, audit of co-operative banks would be conducted on par with scheduled
commercial banks. Accounts would be audited by a qualified person and RBI approval would be required before
appointing, re-appointing or removing an auditor. RBI may order a special audit for such transactions and such
periods as specified in the order. Previously, RBI could issue an order for an additional audit for co-operative
banks, in addition to the audit required under Co-operative Societies Acts.
The Bill makes applicable certain provisions relating to winding up and special provisions for speedy disposal of
winding up proceedings of banks will now be applicable to co-operative banks.
Formulation of scheme for reconstruction or amalgamation without moratorium: Under the BR Act, RBI
may, after placing a bank under moratorium, prepare a scheme for reconstruction or amalgamation of the bank.
This may be done to secure proper management of the bank, or in the interest of depositors, general public, or the
banking system. Banks placed under moratorium do not face any legal action for up to six months. Further,
banks cannot make any payment or discharge any liabilities during the moratorium. The Bill allows RBI to initiate
a scheme for reconstruction or amalgamation of a bank without imposing a moratorium.

ISSUE OF SHARE CAPITAL AND SECURITIES BY CO-OPERATIVE BANKS: A co-operative Bank may, with the prior
approval of the Reserve Bank, issue, by way of public issue or private placement, —
(i) equity shares or preference shares or special shares, on face value or at premium; and
(ii) unsecured debentures or bonds or other like securities with initial or original maturity of not less than ten
years, to any member of such co-operative bank or any other person residing within its area of operation, subject
to such conditions and ceiling, limit or restriction on its issue or subscription or transfer, as may be specified by
the Reserve Bank in this behalf.

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Further, (i) no person shall be entitled to demand payment towards surrender of shares issued to him by a co-
operative bank; and (ii) a co-operative bank shall not withdraw or reduce its share capital, except to the extent
and subject to such conditions as the Reserve Bank may specify in this behalf.

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CHECK YOUR PROGRESS

1. As per which act, RBI has been entrusted with the sole right to issue Bank Notes? (Ans. Section 22 of RBI Act)
2. What are the Denomination of Bank notes that can be issued by RBI? (Ans. From Rs.2/- to Rs.10000/-)
3. As per which act, Bank notes are exempted from Stamp duty? (Ans. Section 29 of RBI Act)
4. As per which act No person in India other than RBI and the Central Government shall draw, accept, make or
issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer
on demand? (Ans. Section 31 of RBI Act)
5. Which act mandates maintenance of CRR by scheduled Commercial Banks with RBI? (Ans. Section 42(1) of
RBI Act.)
6. Which act mandates maintenance of SLR by scheduled Commercial Banks? (Ans. Section 24 of BR Act.)
7. RBI is authorized for Collection and furnishing of credit information based on which act? (Ans. Section 45A of
RBI Act)
8. The Monetary Policy Committee (MPC) constituted by the Central Government under which act and section?
(Ans. Section 45ZB of RBI Act)
9. RBI Publishes Bank rate following which act? (Ans. Section 49 of RBI Act)
10. The maximum denomination of coins which can be issued is ________(Ans. Rs.1000/-)
11. What is the RoI ON CRR Balance being paid by RBI to Banks? (Ans. 0%)
12. No banking company shall hold any immovable property howsoever acquired, except such as is required for
its own use, for any period exceeding ________ years from the acquisition thereof. (Ans. 7 Years)
13. As per Banking Regulation Act, no Director of a banking company, other than its Chairman or whole-time
Director, by whatever name called, shall hold office continuously for a period exceeding ______ years. (Ans. 8
Years)
14. As per BR Act, no shareholder in a banking company shall exercise voting rights in excess of ______ per cent of
the total voting rights of all the shareholders of the banking company. Provided that the Reserve Bank may
increase, such ceiling to _______ per cent.(Ans. 10% and 26%)
15. No person shall, except with the previous approval of the Reserve Bank, acquire shares of a banking company
or voting rights therein to hold ____per cent or more of the paid-up share capital of such banking company or
entitles him to exercise _______ per cent or more of the voting rights in such banking company.(Ans. 5% and
5%)
16. As per which act, no banking company shall grant any loans or advances on the security of its own shares?
(Ans. Section 20, 1.a of BR Act)
17. What is the full form of DEAF? (Ans. Depositor Education and Awareness Fund Scheme 2014)
18. Under which act Central Government can authorize Reserve Bank for issuing directions to banking companies
to initiate insolvency resolution process? (Ans. Section 35 AA of BR Act)
19. RBI is empowered to issue directions in respect of stressed assets as per which act? (Ans. Section 35AB of BR
Act)
20. Which act empowers RBI to remove any managerial or other persons of a Bank? (Ans. Section 36 AA of BR
Act)
21. Guidelines regarding nomination facility in deposit accounts are given in which act? (Ans. Section 45ZA and
ZB of BR Act)
22. Guidelines regarding nomination facility for articles in safe custody are given in which act? (Ans. Section 45ZC
and ZD of BR Act)
23. Guidelines regarding nomination facility in case of Lockers are given in which act? (Ans. Section 45ZE and ZF
of BR Act)

MULTIPLE CHOICE TYPE QUESTIONS

1. Rs.1/- notes are issued under the signature of whom?
a. Finance Secretary
b. Governor of RBI
c. Dy. Governor of RBI
d. Secretary, Department of Financial Services.
2. Who constitutes the Monetary Policy Committee?

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a. RBI
b. Govt of India
c. NABARD
d. None of the above
3. The actual CRR balance on any day of the should not fall below _____% of the required average daily cash
balance by any Bank.
a. 80%
b. 90%
c. 95%
d. 75%
4. The definition of Banking is given in which act?
a. Section 5(b) of BR Act
b. Section 5(b) of RBI Act
c. Section 7 of BR Act
d. Section 18 of BR Act
5. As per BR Act, the ratio of Authorized, Subscribed and paid up capital of a Banking Company in India must be
minimum of____
a. 3:2:1
b. 5:4:2
c. 4:2:1
d. 7:5:3
6. As per which act, no banking company shall hold shares in any company, whether as pledgee, mortgagee or
absolute owner, of an amount exceeding thirty per cent of the paid-up share capital of that company or thirty
per cent of its own paid-up share capital and reserves, whichever is less. (RBI has reduced it to 10%)?
a. Section 19(2) of BR Act
b. Section 19(2) of RBI Act
c. Section 17 of BR Act
d. Section 21 of BR Act.
7. As per which act, no banking company shall with approval of RBI grant any loans or advances to any of its
directors
a. Section :20 (1.b) of RBI Act
b. Section :20 (1.b) of BR Act
c. Section 21 of BR Act
d. Section 19(a) of BR Act
8. RBI issues directions to Banks regarding Selective Credit Control based on authority given in which act?
a. Section 21 of RBI Act
b. Section 17 of RBI Act
c. Section 35 of RBI Act
d. Section 21 of BR Act
9. Which act empowers RBI to cancel license of a Banking Company?
a. Section 22 of BR Act
b. Section 24 of BR Act
c. Section 22(4) of BR Act
d. None of the above
10. Unclaimed deposits for 10 Years or more to be remitted by Banks to RBI within a period of ________ from the
expiry of the said period of ten years to be credited to DEAF fund.
a. 1 Month
b. 3 Months
c. 6 Months
d. 1 Year
11. RBI issues guidelines to Banks on KYC Norms following which act?
a. Section 35A of BR Act
b. Section 36 of BR Act
c. Section 35 of RBI Act
d. Section 23 of BR Act

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12. RBI issued guidelines to Banks regarding not to staple on Bank notes following which act?
e. Section 35A of BR Act
f. Section 36 of BR Act
g. Section 35 of RBI Act
h. Section 23 of BR Act
13. As per Section 36ACA of BR Act, Reserve Bank may supersede the Board of Directors of a banking company
for a period not exceeding _________ provided that the period of supersession of the Board of Directors may be
extended for a further period of ________.
a. 3 months and 3 months
b. 6 months and 6 months
c. 6 months and 3 months
d. 12 months and 12 months
14. Under which act Central Government frames rules for preservation of records?
a. Section 45Z of BR Act
b. Section 49 of BR Act
c. Section 45Y of BR Act
d. None of the above
15. Banks should return the paid cheques to customers on demand following which act?
a. Section 45 Z of BR Act
b. Section 45Z of NI Act
c. Section 43 of NI Act
d. Section 42 of BR Act

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