Banking Regulation and Monetary Policy

The duties of collecting bank to claim protection has been laid down under section 131 of Negotiable Instruments Act.

Correct Answer: (ii) and (iv)  Section 36 AE: Power of Central Government to acquire undertakings of banking companies in certain cases— (1) If, upon receipt of a report from the Reserve Bank, the Central Government is satisfied that a banking company (a) has, on more than one occasion, failed to comply with the directions given to it in writing under Section 21 or Section 35A, in so far as such directions relate to banking policy, or (b) is being managed in a manner detrimental to the interests of its depositors, and that (i) in the interests of the depositors of such banking company, or (ii) in the interest of banking policy, or (iii) for the better provision of credit generally or of credit to any particular section of the community or in any particular area.  Section 36 AF: The Central Government may, after consultation with the Reserve Bank, make a scheme for carrying out the purposes of this part in relation to any acquired bank.  Section 40: Notwithstanding anything to the contrary contained in 2 [Sec.466 of the Companies Act, 1956 (1 of 1956), the 3 [High Court] shall not make any order staying the proceedings in relation to the winding up of banking company, unless the T [High Court] is satisfied that an arrangement has been made whereby the company can pay its depositors in full as their claims accrue. Section 38A: There shall be attached to every High Court, a Court liquidator to be appointed by the Central Government for the purpose of conducting all proceedings for the winding up of banking companies and performing such other duties in reference thereto as the High Court may impose.

The laws applicable to different kind of borrowers are different. Individuals are governed by the Indian Contract Act and partnership firms under partnership Act.

(i) The Central Board in discharging its functions shall act on business principles, regard being had to public interest.

(ii) Central Board to be guided by directions of Central Government  In the discharge of its functions including those relating to a subsidiary bank, the State Bank shall be guided by such directions in matters of policy involving public interest as the Central Government may, in consultation with the Governor of the Reserve Bank and the chairman of the State Bank, give to it.

(iii) Every commercial bank has to keep certain minimum cash reserves with Reserve Bank of India. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate.

(iv) Compensation to be given to shareholders of Imperial Bank.  Every person who immediately before the appointed day is registered as a holder of shares in the Imperial Bank shall be entitled to compensation in accordance with the provisions contained in the First Schedule. Thus, all the statements are true.

Correct Answer: b and d As per Banking regulations act, banks can issue BGs/Letter of Undertaking (LoU)/ Letter of Comfort (LoC) in favour of the overseas supplier, bank and financial institution up to USD 20 mn. per import transaction. Banks can issue unconditional guarantees in favour of overseas employers/importers on behalf of indian exporters.

SEBI is the regulator of CIS. Information on such schemes and grievances against the promoters may be immediately forwarded to SEBI as well as to the EOW/Police Department of the State Government.

Banks utilise Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as an effective tool for bad loans (NPA) recovery. It is possible where non-performing assets are backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Thus, option 3 is the correct answer. 

As per SARFAESI Act, 2002, upon loan default, banks can seize the securities (except agricultural land) without intervention of the court. The Act gives powers of “seize and desist” to banks. Banks can give a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. If the borrower fails to comply with the notice, the Bank may take recourse to take possession of the security for the loan, sale or lease or assign the right over the security and manage the same or appoint any person to manage the same.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was enacted with the objective of regulating securitisation and reconstruction of financial assets and enforcement of security interest created in favour of secured creditors. 

Central Government has issued the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 and prescribed the forms to be used for the purpose of filing information for registration in respect of transactions of securitisation, asset reconstruction of financial assets and security interest over property. Thus, the transactions will have to be registered with the Central Registry.

The registration of the security receipt is required when there is a transfer of receipt or the security receipt is creating, declaring, assigning, limiting, extinguishing any right title or interest in an immovable property.

The Reserve Bank may cancel a certificate of registration granted to a securitisation company or a reconstruction company, if such company

(a) ceases to carry on the business of securitisation or asset reconstruction (b) ceases to receive or hold any investment from a qualified institutional buyer (c) has failed to comply with any conditions subject to which the certificate of registration has been granted to it (d) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of Sub-section (3) of Section 3.

The changes introduced by the SARFAESI Act in the law relating to creation and enforcement of security over property are as under:

Financial assets are made freely assignable notwithstanding anything contained in any law or any agreement (Section 5) Security interest is defined in generic term giving effect to substance over form to a limited extent Powers of enforcement of security interest have been given to the banks and financial institutions Definition of property is made wide to cover variety of property rights Since the existing law in India does not permit enforcement of mortgages of immovable properties, the same are also included in the definition of security interest with power of enforcement without the intervention of the Courts.

The provisions of SARFAESI Act are applicable only for NPA loans with outstanding above Rs. 1 lakh. Non-performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Security interest by way of lien, pledge, hire purchase and lease (not liable for attachment under Section 60 of CPC) are not covered under this Act

In 2006, the Reserve Bank of India announced the revised Banking Ombudsman Scheme with enlarged scope that included customer complaints on certain new areas, such as credit card complaints, deficiencies in providing the promised services even by banks' sales agents, levying service charges without prior notice to the customer and non-adherence to the fair practices code as adopted by individual banks.