Changes in the Banking Regulation Act, 1949

Changes in the Banking Regulation Act, 1949

The Banking Regulation Act, 1949 is a regulatory body of Indian Banks, it controls & regulates all the banking activities of all banks in India. It came into force on 16th March 1949. It was developed in the form of Banking Companies Act.1949. It is applicable in whole India including Jammu & Kashmir from 1956. The Banking Regulation Act, 1949 gives power to the Reserve Bank of India to provide license to banks. It regulates the shareholdings; supervises the appointment and selection of Board members & management. It also regulates the day to day operations of Indian Banks, gives suggestions and directions for audit, controls moratoriums, mergers and liquidations. It gives directions in the interest of social benefit and banking policies & also makes provisions for punishment if needed. 

Initially it was developed for only Banking Companies but in 1965 some amendments’ was made and then it included co-operative banks too for making some changes applicable there, because at that time the financial condition of Indian Banks was very critical. 

For improving the conditions of Indian Banks, and for proper controlling of India Banks and making some changes in The Banking Regulation Act, 1949, on 3rd March 2020 Banking Regulation (Amendment) Bill, 2020   was passed in Lok sabha  by the Minister of Finance, Mrs. Nirmala Sitharaman with regard to co-operative banks.

According to Banking Regulation (Amendment) Bill, 2020, this act shall not apply to 

1.Primary Agricultural Credit Societies 

2.Co-operative Societies

Whose principle function is to provide long term financing for agricultural development and it does not allow these co-operative societies to do the following activities, like – 

1.Using the word ‘Bank’, ‘Banker’ or ‘ Banking’ in their names or in relation to their business,

2.This involves acting as a unit that clears checks.

The Banking Regulation (Amendment) Bill, 2020 provides that a co-operative bank may issue its equity shares, preference shares or special shares at their face value or at a premium to its members or to any other person relating in its area of operation but no person shall allow to be entitled to demand the payment for surrender of shares issued to him by a co-operative bank and a co-operative bank cannot withdraw or reduce its share capital except as directed by Reserve Bank of India. This Bill also states that the Reserve Bank of India may also exempt a co-operative bank or a class of co-operative banks by notifications from certain provisions of the Act. In relation to employment, share qualifications of Board of Directors, appointments of a chairperson and everything will be decided by the Reserve Bank of India.

According to the Banking Regulation Act, 1949 the co-operative  banks cannot open their branches other than the city, place, village in which they are operating without the permission of Reserve Bank of India, but now this provision has been changed by this new amendment bill

After the implementation of the Banking Regulation (Amendment) Bill, 2020, as a Law the Reserve Bank of India will be able to get more information about the working of co-operative Banks, which will make it very easier for Reserve Bank of India to regulate these banks and now it is expected that due to these changes in Banking Regulation Act, 1949, the political interferences will be reduced and the working style will also be change. This will increase public trust and confidence in the current banking system in India.

Author: Minakshi Nag 

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