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The Banking Regulation Act of 1949: Provisions and Amendment

What is the Banking Regulation Act, 1949?

The Banking Regulation Act, 1949 is a law. It regulates the functioning of banks and provides details on several aspects including licensing, management, and operations of banks in India. It had been passed as the Banking Companies Act, 1949 and came into force from March 16, 1949. Further the Banking Companies Act 1949 had been changed to the Banking Regulation Act 1949 and being implemented as the same from March 1, 1966.

It extends to entire India. The provisions of this Act shall be in addition to, and not, save as hereunder expressly PROVIDED, in derogation of the Companies Act, 1956 and any other law for the time being in force.

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Some Provisions of the Banking Regulation Act, 1949

The Act provides a structure under which commercial banking in India is supervised and regulated. The Act supplements the Companies Act, 1956. Primary Agricultural Credit Society and cooperative land mortgage banks are excluded from the Act.

Several powers are provided by the Act to the Reserve Bank of India:

  • to license banks, have regulation over shareholding and voting rights of shareholders;
  • to supervise the appointment of the boards and management;
  • to regulate the operations of banks;
  • to lay down instructions for audits; control moratorium, mergers and liquidation;
  • to issue directives in the interests of public good and on banking policy, and impose penalties

Amendment to the Banking Regulation Act, 1949

Initially, the law was applicable only to banking companies. But in 1965 the Act was amended to form it applicable to cooperative banks under its purview by adding Section 56 to the Act. Cooperative banks, which operate only in one state, are formed and run by the state government. But, licensing is controlled by RBI and also regulates the business operations. The Banking Act was a supplement to the previous acts associated with banking.

Recently, the Lok Sabha has passed an amendment to the Banking Regulation Act, 1949. The Banking Regulation (Amendment) ordinance is replaced by the bill and to the same effect promulgated in June 2020.

The amendment will bring cooperative banks under the direct supervision of the RBI and convey them under some of the same governance norms as commercial banks. Without first imposing a moratorium, it will also allow the RBI to amalgamate or reconstruct a stressed cooperative bank. These amendments are proposed so as to guard the interests of the depositors.

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