The State Bank of India (Subsidiary Banks) Act, 1959

The State Bank of India (Subsidiary Banks) Act, 1959 (Act no. 38 of 1959) being the Act of parliament was enacted with the object to make provisions to set up certain Government Banks or Government Associated Banks as subsidiary of the ‘State Bank of India’-SBI. And further to make provisions as its constitution, management and control. The Act was assented on 10th September, 1959 by the President of India.

The title of second chapter of the Act was amended by the State Associated Banks (Miscellaneous Provisions) Act, 1962 by providing a substituting new title in place of older one which shows making provisions as to constitution of new Banks and also for changing names of any subsidiary bank. And in order to constitute new Banks the provision of section 3 of that Act empowers the Central Government to constitute new banks with the names as the State Bank of Bikaner, State Bank of Indore, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore. Again the aforesaid Amending Act inserted new provisions i.e. section 3A to this Act which deals with changing of name of a subsidiary bank by the Central Government after having consultation with the Reserve Bank of India- RBI and also with the State Bank of India- SBI. And while having such change there should not have any affect to its rights, obligation, etc. The aforesaid newly constituted Banks are treated under section 4 of the Act as corporate bodies and possessing all features of the registered company, and all such corporate bodies consisting of the State Bank and other shareholders of the new bank. And such banks are required to carry its business including banking business as per the provisions of this Act and they can also acquire and dispose of properties for carrying such businesses. The Central Government is empowered to provide for the locations of the head offices of the newly constituted banks and such banks can maintain all branches of the existed corresponding bank as its branches and can also establish new branches after having consultation with the State Bank and approval from the RBI. Recently, in the year 2007 the section 6 of the Act was amended to provide for provisions as to authorised capital of all such new banks which is mentioned as 500 crores of rupees which should be divided into shares of 100 rupees each or as per denomination by the any New bank, however, for such denomination the prior approval of the State Bank is required. Such authorized capital can be reduced or increased at the option of State Bank, however prior consultation and approval from Central Government and RBI is necessary. Section 7 of the Act deals with the Issued capital of such newly constituted banks which the State Bank after having approval from RBI can decide, and which amount is required to be divided into fully paid-up shares of 100 rupees each. And all such shares in the Issued capital are to allotted to the State Bank as per provision. The newly constituted banks are empowered to also establish their reserve funds.

Moreover, the Act makes provisions to transfer free from all encumbrances the shares in capital of the Existing banks to its corresponding new bank, along with all rights, liabilities, authorities, properties, etc. also all contractual responsibilities, etc. Even all the employees and officers of such existing banks were also required to transferred in such corresponding new banks along with their privileges and same conditions of services with benefits also.

Further, important provisions as to payment of compensation to the share-holders of the existing banks are provided under Chapter III of the Act. Section 13 requires the State Bank to pay the compensation to the share holder, including the State Government which is also being a share holder in the existing bank. And the matters relating thereto, are to be referred to the Tribunal by requesting to the Central Government.

Chapter IV says that the Shares of the Subsidiary bank are to be transferable freely. However, the State Bank can no transfer any shares held by it in any subsidiary bank if by such transfer there will be reduction of the shares to less than 51% of issued capital thereof. Nomination provision is made under section 18A where the registered shareholders can nominate individuals for vesting of his shares in case of shareholder’s death.

Moreover, the Chapter V makes provisions to effect the management of the Subsidiary Banks. Section 23 asks the Directors, Chairman, members of board of management, etc. of the existing banks to vacate their offices. And all the management of such Banks will be based on time to time issued directions from the State Bank. Section 25 provides for composition of Board of Director of the Subsidiary banks and further provisions makes relevant provisions thereof. Provisions have also been made for constitution of Executive and other committees.

Further, the Chapter VI makes provisions as to business of such subsidiary banks and it is specified that such subsidiary banks should act as agent of the State Bank and also of RBI in respect of matters provided under section 36 and 36A. Other subsequent provisions make provisions as to other businesses which such subsidiary banks to carry on. Next chapter, being seventh deals with annual reports, accounts and auditing thereof, disposal of profits by such banks. The last chapter containing miscellaneous provisions, specifies for inspections by State Bank, raising subsidies by State Bank to such Subsidiary banks for meeting cost of development programs, staff appointment by such banks, etc. Provisions have also been made for dissolution of existing banks by the Central Government. The Central Government is further empowered under the Act to make rules on certain matters including the one relating to purpose of the Act. And similarly, the Subsidiary bank is also empowered to make regulations and provide for the matters given under section 63. The said power was given by the recent amendment taken place in the year 2011.

by Faim Khalilkhan Pathan.