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Banking Regulation Act 1949 and Important Sections: All You Need To Know Research Team | Posted On Saturday, February 29,2020, 10:08 AM

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Banking Regulation Act 1949 and Important Sections: All You Need To Know



Banking Regulation Act 1949 is an act passed in the year 1949 for the purpose of regulating banks across the country. It was earlier called banking companies act 1949, and later in 1966 it came to be known as the banking regulation act 1949.  Earlier this law was relevant only to banking companies. Later cooperative banks were also included under the law.

The law provides rules regarding the framework within which banks are supposed to operate. Only two categories of banks are excluded from this law: Co-operative land mortgage banks and primary agricultural credit societies.

The act imparts RBI with many powers. This includes the license to control and regulate the voting rights of the shareholders, supervising the appointment process of the management and board, giving licenses to banks, imposing penalties and so on.

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Banking Regulation Act 1949 and Important Sections: All You Need To Know​

Objectives of passing the Act:

  • The Company’s Act 1913 proved to be inadequate for regulating the banking sector of the country.
  • Many banks were failing as they did not have the required capital for a smooth functioning. It was necessary to pass rules regarding maintaining a minimum capital.
  • To reduce unhealthy competition in the banking sector.
  • To safeguard the rights of shareholders and the public.
  • Proper mechanism for appointing the bank officials.
  • To ensure new branches are licensed.
  • Help banks liquidate when they are unable to operate.
  • Impose restrictions on Indian investors.
  • Take necessary steps to strengthen the banking sector of the country.

See Also: Penalties Prescribed Under The Banking Regulation Act 1949

Important sections of Banking Regulation Act, 1949

The act has 56 sections. The most important among them are:

  • Section 10BB: Power of the RBI to appoint the chairman of the board of directors on a whole-time basis or a managing director of a banking company.
  • Section 11: Requirement as to minimum paid up capital and reserves.
  • Section 12: Regulation of paid up capital, subscribed capital and authorized capital and voting rights of shareholders.
  • Section 17: Reserve fund
  • Section 18: Cash reserve
  • Section 20: Restrictions on loans and advances
  • Section 21: Power of RBI to control advances by banking companies.
  • Section 21A: Rates of interest charged by banking companies not to be subject to scrutiny by courts.
  • Section 22: Licensing of banking companies.
  • Section 23: Prohibits banks from opening a new place of business (branches) in India or abroad, change of premises other than within the same city, town or village, without prior approval of the RBI.
  • Section 26: Each banking company to submit an annual return to the RBI in respect of all accounts in India which has not been operated for up to 10 years.
  • Section 29: Accounts and balance sheet.
  • Section 36AA: Power of RBI to remove managerial and other persons from office.
  • Section 36AB: Power of RBI to appoint additional directors.
  • Section 36AE: Power of the central government to acquire undertakings of banking companies in certain cases.
  • Section 39: RBI to be official liquidator.
  • Section 46: Penalties.
  • Section 47A: Power of RBI to impose penalties.
  • Section 49: Special provisions private banking companies.
  • Section 49A: Restriction on acceptance of deposit withdrawal by cheque.
  • Section 49B: Change of name by a banking company.
  • Section 52: Power of RBI to make rules.

See Also: Banking Regulation Act

Penalties under Banking Regulation Act 1949:

Section 46 of the Banking Regulation Act imposes certain penalties that are applicable in the banking sector. These are:

  • If a person deliberately misrepresents facts or figures, or omits them in any of the documents like a balance sheet, or presents false facts, then he/she is liable for an imprisonment up to 3 years along with a fine.
  • If a person is unsuccessful in furnishing any documents which he is liable to submit under Section 35 or fails to answer any of the inspection officer’s queries; then he will be charged with a penalty of Rs 2000 per offence. If this continues, then Rs 100 a day would be charged.
  • If a company doesn’t follow the orders, then every person employed in the company, responsible to the company, or in charge of the company will be punished by law.
  • If a company commits a contravention with the consent or negligence of any of the directors, secretary or another officer, then these officials will be punished.
  • If a company accepts any deposits which are in contravention to any of the orders, then the directors or employees will be punished unless they prove it was done without their knowledge.

See Also: What is Banking System in India?


It is important to know the penalties and sections of the Banking Regulations Act, 1949 as it is beneficial to the public, shareholders and people involved in the banking sector. It will help understand the rights and penalties in the banking industry.

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