Government control
Banking regualtion Act(RBI) regulatory regime, yearly finance bill. To facilate the equal development in India. Opening + liquidation.
- In India the banking system hs its own peculiar regulatory regime which can be basically described on the basis of two statues:
- banking regulation act, 1949.
- reserve bank of India act, 1934.
- The control on banks is exercised in the following
- It’s RBI which decides the rate of interest charged on loans.
- RBI decides the statutory liquidity ratio.
- RBI decides the cash reserve ratio.
- It’s RBI only which also decides the withdrawl limit from ATM.
- In this way it could be said that its’s the central government which impliment its financial policies to regulatory regime.
Objective of the BRA and RBI act
The abbrivation of the BRA is Banjing regualtion act, it contains, 56 sections and section 6(1) is important.
- It provides security and guarntee to the depositor.
- Regulate opening of branches.
- Regulalte banking business.
- Minimum requirement of capital.
- Regulation on the acquisation of shares of banking companies.
- Provisions regarding liquidation proceeding for banking companies.
Important section are as:-
Functions of banking section 6(1)
- Giving and depositing money.
- Agent- amnaging agent.
- Loan
- underwriting.
- Bank can be Guaranteer.
Sec 8- Prohibition of trading.
Section 10 and 10(A)
Sections 11- recuitment as to minimum paid- up capital and reserve.
- Outside India
- minimum paid up capital is 15 lakhs.
- Inside india
- mimimum paid up capital is 5 lakh.
- authorised capital
- subscribed capital
- Paid-up capital.
To order to meet the demand deposit then this has to be fulfilled, subscribed will be the half of authorised and paid-up have to be half of subscribed capital.
section18:- cash reserve
section22 licensing of bank companies, for banking businesses ther must be licence and that licence is granted by RBI.
section36 surther power and functions of Reserve bank.
Following Function being performed by RBI
- Sale and perform the foreign currency.
- issuing letter of credit to expenditure on behalf of person.
- safe deposit value
- merchant banking
- General utility function on behalf of the government book mobilizies huge amount of foreign exchange in infrastructure.
Central Banking
Controling, regualtion, stability. It is independent institution and it has no political ideology. there are only one central bank i.e. RBI in 1935. it supports the function of the government.
- Fuctions of RBI
- Controller of currency / issue bank.
- banker to government. Government can take short or long term loans from the central bank, when export is less and import is more it is deficit, current account deficite, and when export is more then import, it is currernt account surplus.
- custodian of reserve cash
- RBI can only have the custody of cash reserve it will give it as loan to government and commercial banks at interest.
- custodian to foreign currency
- to make certain reserve of foreign currency also . so that during import directly it may paid in foreign currency only.
- banker of last resort
- when commercial banks , agricultural banks, or even the government did not find any way to take loans then rbi will give loans to all these at financial assessment.
- Clearing house.
- protection of depositors
- Controlling the credit plolicy.
- SLR and CRR, RBI insures to make currency so that to control the inflation and deflation and can make the consistency between demand and supply.
Tools of RBI to regulate the money market
To control inflation and deflation RBI have been some of the tools to regulate and control the money market.
Quantitaive methods by RBI
- CRR and SLR are the tools through which RBI used to measures the inflation and deflation, if inflation is being controlled by increasing CRR and SLR, and deflation, is being controlled by ddecreasing CRR and SLR.
Open market operation by RBI
RBI directly plays role in this , if the situation is of inflation then open market operation will be slae off, and if the situation is of deflation then RBI will start purchasing the open market operation, i.e. government securities, bonds and other assets of RBI which is being sale or purchased.
Policy rate
Bank rate repo rate and reserve repo rate in this RBI gives the loan if RBI wants to control inflation the interest will increase and in the case of deflation the interest will be decreased.
Qualitative and the moral suasan
It is the first and foremost tool to be used by RBI in the case of inflation and deflation, if there is inflation the loan is being stringent and if there is deflation the loan will be liberal.
Reconstruction and reorganisation of banking companies RBI
If any company or banking company facing any financial case, then in this case the company got restructering and reorganising.
- Restructure
- To introduce the same firm with the restaffing and some new terms to work , it is also for the banking and non-banking companies.
- Reorganisation
- Two banking companies merged with each other so that their capital together may increase, it is for the ompanies and banking companies both.
According to act sections
In section 392, there are 5 provisions which givesw guideline to reorganised and restructure the company.
Regorganisation and Amalgation are same, when two company merged tofether to overcome from their losses, when pull in of two companies losses are amlagation.
Section 44(A) procedure dor Amalgation of banking companies.
Section44(1) Amalgation is not necessory or can not be done if the shareholders of both the companies is not ready for the resolution.
Section 44(2) If the shareholders are agreed to merged the both companies, only if notice is being circulated and shareholders adopt the notice only consent of the shareholders with in majority.
Section 44(B) Restriction on companise arangement between banking company and creditors. After shareholders, the creditors are playing the most important role in this, debenture holder i.e.
the second creditors are also important for the amalgation of the company. The secured and unsecured creditors are the priority for the amalgation of the companies.
Section 45 It will be the RBI on the request of the companies to the consent of central government i.e. maratorium- almost died.
suspension- may be reopen after the winding up.
Disslove- Permanently disslove the company.
Within 6 months, the company have to get amalgation reorganisation, reconstruction or else the company will permanently disslove, but not to suspension , after getting moratorium from the central government.
reference: original note written by Riya Tiwari student LLB from United university Prayagraj Uttar Pradesh.