THE BANKING REGULATION ACT, 1949

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The Banking Regulation Act is a Central legislation enacted on March 10, 1949 and came into effect on March 16, 1949 when the Government of India publicized in the Gazette of India for the purpose of altering and uniting the legal documents on banking. The provisions of the enactment shall not be applicable to the primary agricultural credit society as provided under the Act as well as the banks under co-operative land mortgage. The Act shall also be ineffective with respect to various co-operative societies but as per the modes specified under Part V of the enactment. The Central Government is granted with the power to suspend some of the terms of the present enactment for the term specified under the Act after being signified by the Reserve Bank of India. The term prescribed shall not be more than 60 days for suspension of the terms of the enactment. The authority of the Government of India shall be acted by the Governor or the Deputy Governor. The term shall be enlarged by the Central Government but without exceeding more than a year.

According to the provisions of the Act, the applicability of the Act shall be valid devoid of the terms stipulated under the Memorandum of Association or the Articles of Association entered by the banking companies or the contract entered by such company or such other documents specified under the present enactment. Where the terms under such documents are not in compliance with the present enactment, such provisions shall become invalid. Moreover, the banking company is permitted under the Act to conduct other businesses as well like the advancing, increasing etc of money and providing or borrowing of funds with sufficient security or not. The bank shall also have the authority to draw funds, accept money, cut rate, purchase, gather and carry out with bill of exchange, promissory notes etc. It shall grant letters of credit cheque of travelers and can purchase and sell of foreign exchange. The bank shall perform under the Government of India or other local establishments and shall conduct functions to deal with trade agency of any type consisting of payment and promoting of commodities, providing receipts and shall carry out the activities of an attorney. But the bank cannot have the business of administrative agent or as the financier of a company. It shall manage estates and constitute or assist in the constitution of organizations, endowments, benefits for the well-being of employees, give pension schemes and give premium of insurance policies and so on. The bank shall perform such other functions as specifically provided under the present enactment.

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Likewise, the Bank is barred from conducting trade except on certain terms stipulated under the Act. The banks shall also not keep immovable properties apart from, for the use of the bank. The Director Board members shall be added with persons having professional knowledge and practical experience in the fields specified by virtue of the Act. The banking companies so established shall be managed and administered by a Chairman on full time basis. The Act regulated and fixes the paid up share capital to be held by such banking companies and the privileges available to its shareholders while casting votes. It provides for the constitution of a reserve fund by the newly established banking companies. The reserve bank is given authority under the Act to restrict and impose control on the advancing and borrowing of funds by the banking companies. In the interest of the general public and for the proper discharge of the strategies fixed by bank as well as the proper administration of the banking companies and for other reasons, the reserve bank shall give directions to such banking companies. The reserve bank shall also change or remove the staff or administrators of the banking companies. The Government of India shall acquire some of the establishments of the bank as per the provisions of the present Act. The Central Government shall also establish a banking tribunal with such number of members as specified.

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Even though many amendments were effected to the present enactment, the most significant being the Banking Regulation (Amendment) And Miscellaneous Provisions Act, 2004 enacted on December 20, 2004 in order to alter the Banking Regulation Act, 1949 along with the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961.