The Banking Regulation Act enacted in 1949 provides a framework for regulation and supervision of commercial banking activity. The provisions of this Act shall be in addition to, and not, in derogation of the Companies Act, 1956 (1 of 1956), and any other law for the time being in force. However the provisions of the Companies Act applies to only the banks in the private sector.

Provisions of the Act does not apply to-

1. a primary agricultural credit society;

2. a co-operative land mortgage bank; and

3. any other co-operative society, except in certain cases.

�Banking� as defined in the Section 5 (b) of the Banking Regulations Act, 1949 is the business of "Accepting deposits of money from the public for the purpose of lending or investment". These deposits are repayable on demand or otherwise, and withdrawable by a cheque, draft, order or otherwise.

The deposits accepted by a Banking Company are different from those accepted by Non Banking Finance Company or any other company in the nature in which these are repayable. Banks are the only financial institutes which can accept demand deposits ( Saving / Current) which can be withdrawn by a cheque.

Section 6 of Banking Regulations Act, 1949 elaborately specifies the other forms of business which a banking company may carry in addition to banking as defined in section 5. These include in a nutshell

• Issuing Demand Drafts & Travellers Cheques

• Collection of Cheques, Bills of exchange

• Discounting and purchase of Bills

• Safe Deposit Lockers

• Issuing Letters of Credit & Letters of Guarantee

• Sales and Purchase of Foreign Exchange

• Custodial Services

• Investment services

• doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;

• any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage.

No banking company shall engage in any form of business other than those referred to above

No company other than a banking company shall use as part of its name or, in connection with its business any of the words "bank", "banker" or "banking" and no company shall carry on the business of banking in India unless it uses as part of its name at least one of such words. No firm, individual or group of individuals shall, for the purpose of carrying on any business, use as part of its or his name any of the words "bank", "banking" or "banking company".

However the following bodies are exempted from the above restriction to the extent specified.

1. a subsidiary of a banking company formed for one or more of the purposes mentioned in sub-section (1) of section 19, whose name indicates that it is a subsidiary of that banking company;

2. any association of banks formed for the protection of their mutual interests and registered under section 25 of the Companies Act, 1956 (1 of 1956).

No banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realization of security given to or held by it, or engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business. However this restriction shall not apply in respect of those functions or any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage.

Explanation: For the purposes of this section, "goods" means every kind of movable property, other than actionable claims, stock, shares, money, bullion and specie and all instruments referred to in clause (a) of sub-section (1) of section 6. The aforesaid clause reads as under:

"drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts, bill of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, travellers' cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others; the negotiating of loan and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities;"

No banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of this Act, whichever is later or any extension of such period as in this section provided, and such property shall be disposed of within such period or extended period, as the case may be:

PROVIDED that the banking company may, within the period of seven years as aforesaid, deal or trade in any such property for the purpose of facilitating the disposal thereof:

PROVIDED FURTHER that the Reserve Bank may in any particular case extend the aforesaid period of seven years by such period not exceeding five years where it is satisfied that such extension would be in the interests of the depositors of the banking company.

1. No banking company shall employ or be managed by a Managing Agent. The Banking Company shall not employ or continue employ a person, ) who is, or at any time has been, adjudicated insolvent, or has suspended payment or has compounded, with his creditors, or who, is or has been, convicted by a criminal court of an offence involving moral turpitude; or whose remuneration or part of whose remuneration takes the form of commission or of a share in the profits of the company, or whose remuneration is, in the opinion of the Reserve Bank, excessive;

Exception to the above rule

1. any bonus in pursuance of a settlement or award arrived at or made under any law relating to industrial disputes or in accordance with any scheme framed by such banking company or in accordance with the usual practice prevailing in banking business;

2. any commission to any broker (including guarantee broker), cashier-contractor, clearing and forwarding agent, auctioneer or any other person, employed by the banking company under a contract otherwise than as a regular member of the staff of the company.

2. No banking company shall be managed by any person, who is a Director of any other company not being

   1. a subsidiary of the banking company, or

   2. a company registered under section 25 of the Companies Act, 1956 (1 of 1956)

3. No banking company shall be managed by any person, who is engaged in any other business or vocation; or whose term of office as a person managing the company is for a period exceeding five years at any one time

   PROVIDED that the term of office of any such person may be renewed or extended by further periods not exceeding five years on each occasion subject to the condition that such renewal or extension shall not be sanctioned earlier than two years form the date on which it is to come into force:

PROVIDED ALSO that where the term of office of such person is for an indefinite period, such term, unless it otherwise comes to an end earlier, shall come to an end immediately on the expiry of five years from the date of his appointment or on the expiry of three months from the date of commencement of section 8 of the Banking Laws (Miscellaneous Provisions) Act, 1963 (55 of 1963), whichever is later

Not less than fifty-one per cent of the total number of members of the Board of Directors of a banking company shall consist of persons, who-

1. shall have special knowledge or practical experience in respect of one or more of the following matters, namely,-

   1. accountancy,

   2. agriculture and rural economy,

   3. banking,

   4. co-operation,

   5. economics,

   6. finance,

   7. law,

   8. small-scale industry,

   9. any other matter the special knowledge of, and practical experience, which would, in the opinion of the Reserve Bank, be useful to the banking company:

PROVIDED that out of the aforesaid number of Directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale industry; and

2. shall not have substantial interest in, or be connected with, whether as employee, manager or managing agent in any company, not being a company registered under section 25 of the Companies Act, 1956 (1 of 1956), or any firm, which carries on any trade, commerce or industry and which, in either case, is not a small-scale industrial concern, or be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial concern.

1. No Director of a banking company, other than its Chairman or whole-time Director, by whatever name called, shall hold office continuously for a period exceeding eight years

   A Chairman or other whole-time Director of a banking company who has been removed from office as such Chairman, or whole-time Director, as the case may be, under the provisions of this Act shall also cease to be a Director of the banking company and shall also not be eligible to be appointed as a Director of such banking company, whether by election or co-option or otherwise, for a period of four years from the date of his ceasing to be the Chairman or whole-time Director, as the case may be.

2. Where the Reserve Bank is of opinion that the composition of the Board of Directors of a banking company is such that it does not fulfil the requirements as above, it may, after giving to such banking company a reasonable opportunity of being heard, by an order in writing, direct the banking company to so re-constitute its Board of Directors as to ensure that the said requirements are fulfilled and, if within two months from the date of receipt of that order, the banking company does not comply with the directions made by the Reserve Bank, that Bank may, after determining, by lots drawn in such manner as may be prescribed, the person who ought to be removed from the membership of the Board of Directors, remove such person from the office of the Director of such banking company and with a view to complying with the provisions, appoint a suitable person as a member of the Board of Directors in the place of the person so removed whereupon the person so appointed shall be deemed to have been duly elected by the banking company as its Director.

3. No act or proceeding of the Board of Director of a banking company shall be invalid by reason only of any defect in the composition thereof or on the ground that it is subsequently discovered that any of its members did not fulfil the requirements of this section.

1. Every banking company in existence on the commencement of the Banking Regulation (Amendment) Act, 1994, or which comes into existence thereafter shall have one of its Directors, who may be appointed on a whole-time or a part-time basis as Chairman of its Board of Directors, and where he is appointed on a whole-time basis as Chairman of its Board of Directors, he shall be entrusted with the management of the whole of the affairs of the banking company:

2. The Chairman shall exercise his powers subject to the superintendence, control and direction of the Board of Directors.

3. Where a Chairman is appointed on a part-time basis such appointment shall be with the previous approval of the Reserve Bank and be subject to such conditions as the Reserve Bank may specify while giving such approval. The management of the whole of the affairs of such banking company shall be entrusted to a Managing Director who shall exercise his powers subject to the superintendence, control and direction of the Board of Directors.

4. Every Chairman of the Board of Directors who is appointed on a whole-time basis and every Managing Director of a banking company shall be in the whole-time employment to such company and shall hold office for such period, not exceeding five years, as the Board of Directors may fix, but shall subject to the provision of this section, be eligible for re-election or re-appointment.

5. Nothing in this sub-section shall be construed as prohibiting a chairman from being a Director of a subsidiary of the banking company or a Director of a company registered under section 25 of the Companies Act, 1956 (1 of 1956).

1. Where the Reserve Bank is of opinion that any person who is, or has been elected to be, the Chairman of the Board of Directors who is appointed on a whole-time basis or the Managing-Director of a banking company is not a fit and proper person to hold such office, it may, after giving to such person and to the banking company a reasonable opportunity of being heard, by order in writing, require the banking company to elect or appoint any other person as the Chairman of the Board of Directors who is appointed on a whole-time basis or the Managing-Director and if, within a period of two months from the date of receipt of such order, the banking company fails to elect or appoint a suitable person as Chairman of the Board of Directors who is appointed on a whole-time basis or the Managing Director, the Reserve Bank may, by order, remove the first-mentioned person from the office, of the Chairman of the Board of Directors who is appointed on a whole-time basis or a Managing Director of the banking company and appoint a suitable person in his place whereupon the person so appointed shall be deemed to have been duly elected or appointed, as the case may be, as the Chairman of the Board of Directors who is appointed on a whole-time basis or the Managing Director of such banking company and any person elected or appointed as Chairman under this sub-section shall hold office for the residue of the period of the person in whose place he has been so elected or appointed.

2. The Reserve Bank may, if in its opinion it is necessary in the public interest so to do, permit the Chairman of the Board of Directors who is appointed on a whole-time basis or a Managing Director to undertake such part-time honorary work as is not likely to interfere with his duties as such Chairman or Managing Director.

3. Where a person appointed on a whole-time basis, as Chairman of the Board of Directors or Managing Director dies or resigns or is by infirmity or otherwise rendered incapable of carrying out his duties or is absent on leave or other wise in circumstances not involving the vacation of his office, the banking company may, with the approval of the Reserve Bank, make suitable arrangements for carrying out the duties of Chairman or Managing Director for a total period not exceeding four months.