(Study Materials) IBPS Specialist Officer : Professional Knowledge - Law
Study Materials For Bank's Examinations
Professional Knowledge for Specialist Officer - Law
Banking Regulation & Compliance and Legal Aspects
The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934.[3] The share capital was divided into shares of 100 each fully paid, which was entirely owned by private shareholders in the beginning.[4] Following India's independence in 1947, the RBI was nationalised in the year 1949.
The RBI plays an important part in the development strategy of the Government of India. It is a member bank of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 21-member-strong Central Board of Directors—the Governor (currently Raghuram Rajan), four Deputy Governors, two Finance Ministry representative, ten government-nominated directors to represent important elements from India's economy, and four directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards consists of five members who represent regional interests, as well as the interests of co-operative and indigenous banks.
The bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion (AFI).
Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations.(one rupee note and coin, which are issued by Ministry of finance).
The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department.
Monetary Authority
The Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors.
Regulator and Supervisor of the Financial System
The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions.Its objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.
The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins.[30]
Managerial of exchange control
The central bank manages to reach the goals of the Foreign
Exchange Management Act, 1999. Objective: to facilitate external trade and
payment and promote orderly development and maintenance of foreign exchange
market in India.
Issuer of currency
The bank issues and exchanges or destroys currency notes and coins that are not
fit for circulation. The objectives are giving the public adequate supply of
currency of good quality and to provide loans to commercial banks to maintain or
improve the GDP. The basic objectives of RBI are to issue bank notes, to
maintain the currency and credit system of the country to utilize it in its best
advantage, and to maintain the reserves. RBI maintains the economic structure of
the country so that it can achieve the objective of price stability as well as
economic development, because both objectives are diverse in themselves.
Banking Regulations Act 1949
The Banking Regulation Act was passed as the Banking Companies Act 1949 and came into force wef 16.3.49. Subsequently it was changed to Banking Regulations Act 1949 wef 01.03.66. Summary of some important sections is provided hereunder. The section no. is given at the end of each item. For details, kindly refer the bare Act.
Banking means accepting for the purpose of lending or investment of deposits of money from public repayable on demand or otherwise and withdrawable by cheque, drafts order or otherwise.
Banking company means any company which transacts the business of banking.
Transact Banking Business in India
Demand liabilities are the liabilities which must be met on demand and time liabilities means liabilities which are not demand liabilities.
Secured loan or advances means a loan or advance made on the security of asset the market value of which is not at any time less than the amount of such loan or advances and unsecured loan or advances means a loan or advance not secured.
Defines business a banking company may be engaged in like borrowing, lockers, letter of credit, traveller cheques, mortgages etc.
States that no company shall engage in any form of business other than those referred in Section.
For banking companies carrying on banking business in India to use at least one word bank, banking, banking company in its name.
Restrictions on business of certain kinds such as trading of goods etc.
Prohibits banks from holding any immovable property howsoever acquired except as acquired for its own use for a period exceeding 7 years from acquisition of the property. RBI may extend this period by five years.
Prohibitions on employments like Chairman, Directors etc.
Paid up capital, reserves and rules relating to these. Banks not to pay any commission, brokerage, discount etc. more than 2.5% of paid up value of one share.
Prohibits a banking company from creating a charge upon any unpaid capital of the company. Section 14(1) prohibits a banking company from creating a floating charge on the undertaking or any property of the company without the RBI permission.
Prohibits payment of dividend by any bank until all of its capitalised expenses have been completely written off. To create reserve fund and 20% of the profits should be transferred to this fund before any dividend is declared.
Cash reserve: Non-scheduled banks to maintain 3% of the demand and time liabilities by way of cash reserves with itself or by way of balance in a current account with RBI.
Permits banks to form subsidiary company for certain purposes.
No banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owners of any amount exceeding 30% of its own paid up share capital + reserves or 30% of the paid up share capital of that company whichever is less.
Restrictions on banks to grant loan to person interested in management of the bank.
Power to Reserve Bank to issue directive to banks to determine policy for advances.
Every bank to maintain a percentage of its demand and time liabilities by way of cash, gold, unencumbered securities 25%-40% as on last Friday of 2nd preceding fortnight.
Return of unclaimed deposits (10 years and above)
Every bank has to publish its balance sheet as on March 31st. Balance sheet is to be got audited from qualified auditors (30 (i)) Publish balance sheet and auditors report within 3 months from the end of period to which they refer. RBI may extend the period by further three month (31) Prevents banks from producing any confidential information to any authority under Indl Disputes Act. (34A) RBI authorised to undertake inspection of banks (35). Amendment carried in the Act during 1983 empowers Central Govt to frame rules specifying the period for which a bank shall preserve its books (45-y), nomination facilities (45ZA to ZF) and return a paid instrument to a customer by keeping a true copy (45Z). Certain returns are also required to be sent to RBI by banks such as monthly return of liquid assets and liabilities (24-3), quarterly return of assets and liabilities in India (25), return of unclaimed deposits i.e. 10 years and above (26) and monthly return of assets and liabilities (27-1).
Reserve Bank of India Act, 1934
Structure RBI runs a monetary museum in Mumbai Central Board of Directors
The Central Board of Directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The Board consists of a governor, four deputy governors, fifteen directors to represent the regional boards, one from the Ministry of Finance and ten other directors from various fields.
Governors
The current Governor of RBI is Raghuram Rajan. There are four deputy governors, Deputy Governor K C Chakrabarty,Anand Sinha , H R Khan and Urjit Patel . Deputy Governor K C Chakrabarty's term has been extended further by 2 years. Subir Gokarn was replaced by Urjit Patel in January 2013.[26]
Supportive bodies
The Reserve Bank of India has ten regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and serve—beside the advice of the Central Board of Directors—as a forum for regional banks and to deal with delegated tasks from the central board.[27] The institution has 22 regional offices.
The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring and internal controlling systems.
The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to "lay the road map" to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 1999–2000.
On 1 July 2007, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India created a new customer service department.
Offices and branches
The Reserve Bank of India has four zonal offices. It has 19 regional offices at most state capitals and at a few major cities in India. Few of them are located in Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, and Thiruvananthapuram. It also has 9 sub-offices located in Agartala, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shillong, Shimla and Srinagar.
The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at Chennai and College of Agricultural Banking at Pune. There are also four Zonal Training Centres at Mumbai, Chennai, Kolkata and New Delhi.
Main functions
Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture depicting "Prosperity through agriculture".
The RBI Regional Office in Delhi.
The regional office of RBI (in sandstone)in front of GPO(in white) at Dalhousie Square, Kolkata.
Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank
has the sole right to issue bank notes of all denominations.(one rupee note and
coin, which are issued by Ministry of finance).
The distribution of one rupee notes and coins and small coins all over the
country is undertaken by the Reserve Bank as agent of the government. The
Reserve Bank has a separate Issue Department which is entrusted with the issue
of currency notes. The assets and liabilities of the Issue Department are kept
separate from those of the Banking Department.
Managerial of Exchange Control
The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of Currency
The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The objectives are giving the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves.
Banker of Banks
Nagpur branch holds most of India's gold deposits
RBI also works as a central bank where commercial banks are account holders and can deposit money.RBI maintains banking accounts of all scheduled banks. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As banker's bank, the RBI facilitates the clearing of cheques between the commercial banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of the last resort by providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises.
