BANKING LAW

seminar - I

THEME- Banking Laws (Amendment) Act, 2012

SUB-THEME – Increased powers of Reserve Bank of India

SUBMIITED TO SUBMITTED BYDr. R.S. Solanki Itisha Jain, 090713FOL LL.M.

introductionThe Banking Laws (Amendment) Act, 2012 seeks to strengthen the regulatory powers of the Reserve Bank of India and to further develop the banking sector in India. This Act aims to address the issue of capital raising capacity of banks in India by enabling nationalized banks to raise capital by issue of preference shares or rights issue or issue of bonus shares. It would also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore. The Bill would also pave the way for new bank licenses by RBI resulting in opening of new banks and branches. 

historyThe Banking Regulation Act, 1949 has been in force for more than six decades.

The bill was first introduced in the Lok Sabha on May 13, 2005.

The Bill then presented to the Lok Sabha in 2011 incorporates certain provisions of the Banking Regulation (Amendment) Bill, 2005.

After various delays and much deliberation, the Banking Laws (Amendment) Bill was finally passed in December 2012 during the Winter Session of the Parliament.

The Lok Sabha (Lower House) passed the bill on December 18 2012 and the Rajya Sabha (Upper House) approved on December 20 2012. Enabling the Bill to become law, President Pranab Mukherjee gave his assent to the Bill on January 10 January 2013.

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Salient features of the Act

To enable banking companies to issue preference shares

subject to regulatory guidelines by the RBI

To increase the cap on restrictions

on voting rightsTo create a Depositor

Education and Awareness Fund.

To provide prior approval of RBI for acquisition of 5% or more of shares or

voting rights in a banking company by any person.

Increased powers of RBI

To enable the nationalized banks to raise capital through

“bonus” and “rights” issue and also enable them to increase or decrease the authorized capital with

approval from the Government and RBI

Powers Granted to RBI under the Act-1. Enhanced regulatory powers of RBI-

The Act enabled RBI, in consultation with the central government, to supersede

the board of directors of banking company for a period up to six months, if its affairs are conducted in a manner detrimental to the interest of the depositors.

2. Inspect Associate Enterprises-

The Act empowers the RBI to call for any information and cause inspection of

business of any ‘associate enterprise’ of a bank. This should provide legal

framework for setting up of bank holding companies and pave the way for issue of

new bank licenses.

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3. Depositor Education and Awareness Fund

RBI has been empowered to establish Depositor Education and Awareness Fund. Funds lying in any non-operative accounts for 10 years or more or any deposits not claimed for 10 years or more in a bank now requires to be credited to the said Fund within 3 months from the expiry of 10 years.

4. Cash Reserve ratio (CRR)-

The Act empowers RBI to demand penalty from the defaulting bank, if it fails to maintain CRR on any day

of the year. 5. Cooperative Societies-

According to the amending Act the cooperative societies

should mandatorily obtain license from RBI to carry on the banking

business.

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6. Merger of Banks-

The legislation intends to exempt the mergers of banking companies from the purview of the Competition Commission of India, thereby, conferring power to RBI to take the decision.

7. Acquisition of substantial shareholdings

The Act provides that approval of the RBI must be procured for any direct or indirect acquisition of shares or voting rights in an Indian bank which is in excess of 5% of the paid-up capital of the bank.

conclusion The measures contained in the amended Act will

create more confidence among investors, depositors and the public in the banking system, more reforms are needed in the immediate future to improve corporate governance and free up the public sector banks from political interference, as well as the dual control of banks by the Finance Ministry and the RBI.

. Thank you