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Banking legislation In India
Banks deal with the money of a large number of depositors who don’t have any say in their working.Banking legislation is enacted to safeguard the interest of the depositors and the shareholders of banks. The first attempt at banking legislation in India was the passing of the Indian companies (amendment) Act, 1936 which contained special provisions relating to banking companies. Prior to that, they were governed by the general provisions of the Indian Companies Act, 1936 was subsequently amended in 1942 to incorporate a few more provisions concerning banks. But the years following this amendment led to a mushroom growth of banking companies in India which ultimately led the Government after independence to pass a comprehensive law exclusively for their regulation and control under the name of Banking Regulation Act, 1949.
The Banking Regulation Act, 1949 as amended up – to – date is a very comprehensive piece of legislation which has played an important role in establishing the banking system on sound lines throughout the country and providing stability and flexibility to the Indian monetary system in keeping with the overall objective of growth and stability. The Act defines the term ‘Banking’ as accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order, or otherwise. The Act has also tried to tone up administration and management of banks. It lays down that no banking company can employ or be managed by a managing agent, or any person who has been declared an insolvent, or has been convicted by a criminal court of an offence involving moral turpitude, or who takes a commission or a share in the profits of the company, or engaged in any other business or vacation, or has a contract with the company for a period exceeding five years at a tie, or whose remuneration is excessive in the opinion of the RBI.
The Act confers wide powers on the RBI to control and regulate the working of banking companies. No banking company can operate in India without getting a licence from the RBI. The Reserve Bank issues a license, if it is satisfied that the banking company is or will be in a position to pay its present or future depositors in full; that its operations are not detrimental to the interests of its depositors; that it has adequate capital structure and earning prospect; that public interest will be served by it; and that it would not be prejudicial to the operation and consolidation of the banking system. If the banking company is incorporated outside India, then an additional condition for the grant of licence is that there should not be any discrimination against Indian banking companies operating in that country to which the foreign bank belongs.
The banking Companies Amendment Act, 1994 amends the Banking Companies Acts of 1970 and 1980 whereby 14 and 6 scheduled commercials banks were nationalized respectively.