JAIIB LEGAL ASPECTS NUMBER 1
Banks are mainly governed by
Banking regulation act 1949
Reserve bank of India act
Definition of banking
Section 5 b of the banking regulation act 1949
Acceptance of deposits of money from public for the purposes of lending or investment
Banks can refuse to open an account for an undesirable customer.
Opening of account is subject to verification of the identity and purpose of opening etc
]know your customer norms requires proper validation of the details by proper documents like ration card voter card id card driving license , certificate of incorporation ( for companies ) etc ,
as the bank accounts can be misused for routing illegal monies like terrorist / drug operations etc lot of verification is required before opening the account without of course any undue inconvenience to customer. Proper opening protects the banker from charges of negligence and protects payments made in due course under NI act .
proper verification will avoid money laundering thru such accounts
avoid frauds ( like encashing somebody s dividend warrants)
under 49a of the BR act the banks only can accept deposits withdraw able by cheques.
The exemptions are like post office accounts credit society or persons notified by govt
Non banking entities are governed by NBFC acceptance of public deposits RBI directions 1998
Individuals firms unincorporated enterprises who were engaged in the business of banking are now prevented from accepting public deposits. For example a money lender in a village cannot accept deposits from public . he can Accept from relatives.
License to bank and use of word bank requires RBI license under section 22 of the Banking Regulation Act 1949
Section 6 (1) of the BR act lists all the activities of the banks like deposits , loans letters of credit investments safe deposits bills etc
Banks are specifically prohibited in some business like trade / barter goods
. But it can realize security.
Categories of banks
Public sector banks
These are SBI (sbi act 1955), sbi subsidiary banks (1959 Act),
Regional Rural Banks RRB act 1976
And nationalized banks under banking companies acquisition act 1970. and 1980 under two state nationalization
Banking companies are the private sector banks under the companies act or a foreign bank ( incorporated outside India ). These banks are governed by the BR act for banking matters., and companies act for constitution
Reserve bank of India act 1934 gives details of the functions of
rbi. This was amended significantly in 1997 AND A THE INFORMATION TECH ACT 200 GAVE CERTAIN POWERS TO RBI. FOR REGULATING PAYMENT SYSTEMS OF BANKS .
MAIN FUNCTIONS OF RBI
CURRENCY MANAGEMENT PRINTING CURRENCY
REGULATING MONETARY POLICY FOR MAINTENANCE OF CURRENCY VALUE
REEGULATION OF BANKS
NOW LET US KNOW SOME THING ABT RBI SOME FACT SWHICH MAY BE USEFUL FOR THE EXAM
THE BANK CAN ISSUE NOTES FROM RS2/ TO RS 10000/ DENOMINATION . RIGHT NOW IT IS ISUUING ONLY UPTO RS 1000/. ONE RUPEE NOTES WHICH WERE ISSUED BY THE GOVT OF INDIA ARE NOT ISSUED NOW.
RBI REGULATES ENTRY OF BANKS THEIR BUSINESS AND INSPECTS THEIR BUSINESS , SUPERVISES BY SCRUTINY OF RETURNS PRESCRIBED UNDER BR ACT. THE BOARDS , VOTING RIGHTS ETC ARE SUBJECT TO RBI CONTROL
IT CAN GIVE DIRECTIONS AND NOTICES WARNINGS PENALTIES ETC
IT CAN AUTHOSRISE WINDING UP MORATORIUM ( TIME FOR REPAYMENT OF DEPOSIT) AMAGMATIONS ETC.
BANKS MAY UNDERTAKE CERTAIN NON BASNKING BUSINESS LIKE CAPITAL MARKET OPERATIONS / MUTUAL FUNDS ETC. THESE ACTIVITIES ARE REGULATERD BY SECURIES EXCHANGE BOARD OF INDIA (SEBI) .
BANKING SUBSIDIARY ENGAGED IN INSURANCE IS GOVERNED BY INSURANCE REGULATORY AUTHRITY OF INDIA .
LET US HAVE A QUICK QUESTION AND ANSWER SESSION
Govt of India can issue direction to rbi true /false
Answer TRUE. It can issue direction to RBI Eg budget announcements .
All kinds of business of banks is regulated only by the reserve bank
True or false
Central Govt is the primary regulator of banks
True or false
Answer FALSE . it is RBI
Stae govt has no control over coop banks
True or false
Answer false It has control over the cop banks operating in one state the state laws apply.
If a license is cancelled for a bank there is an appeal to Central Govt
True or false
TRUE . appeal can be made.
Select the answer
Coop banks operating in different states are regd under
state cop societies act .
Multi state coop societies act
Answer b. Multi state coop societies act
Govt can exempt a bank from provisions of BR act >>
on the recommendation of RBI
whenever the Govt is satisfied
if requested by the bank
answer b. on the recommendation of RBI
…………….. exercises the central banking functions In India
State bank of India
Reserve bank of India
Central bank of India
Answer is b Reserve bank of India…
( pl don’t get confused with central bank which is one of the commercial banks only. Central bank of a country issues notes acts as banker to banks banker to govt and controls monetary policy and manages foreign exchange and maintains reserves ,monitors foreign exchange and external value of currency. Advises govt on economic and fiscal policies etc. regulates supervises banks and NBFCs
Company matters of a banking company are regulated by
Authotities under Companies act
Answer c authorities under companies act
Trading in shares and securities by banks is regulated by
Controller of capital issues
Company Law Board
Answer b. SEBI