Banking Regulation and Monetary Policy

Notwithstanding anything to the contrary contained in Section 235 of the Companies Act, 1956 (1 of 1956)], Reserve Bank at any time may, and on being directed so to do by the Central Government, shall cause an inspection to be made by one or more of its officers of any banking company and its books and accounts, and Reserve Bank shall supply to the banking company a copy of its report on such inspection. However, 35-A talks about the power of the Reserve Bank to give directions in the interest of public interest and banking policy. 

For banking companies (private banks), it is prepared as per part I of Schedule VI of Companies Act. At the expiration of each calendar year or at the expiration of a period of twelve months ending with such date as the Central Government may, by notification in the Official Gazette, specify in this behalf, every banking company incorporated in India, in respect of all business transacted by it and every banking company incorporated outside India, in respect of all business transacted through its branches in India, shall prepare with reference to that year or period, as the case may be, a balance-sheet and profit and loss account as on the last working day of that year or the period, as the case may be in the form set out in the Third Schedule or as near thereto as circumstances admit.

Section 22 in Banking Regulation Act,1949 states that no company shall carry on banking business in India, unless it holds a licence issued on that behalf by the Reserve Bank and any such licence may be issued subject to such condi­tions as the Reserve Bank may think fit to impose.

Section 7 in Banking Regulation Act,1949 states that no company, other than a banking company, shall use as part of its name (or in connection with its business) any of the words “bank”, “banker” or “banking” and no company shall carry on the business of banking in India unless it uses as part of its name at least one of such words. No firm, individual or group of individuals shall, for the purpose of carrying on any business, use as part of its or his name any of the words “bank”, “banking” or “banking compa­ny”. 

The guidelines for nature of records to be maintained by a bank under Prevention of Money Laundering Act, 2002 are issued by RBI and SEBI from time to time.

In that case, the Supreme Court was dealing with the validity of the SARFAESI Act. The Court struck down Section 17(2) of the Act as ultra vires Article 14 of the Constitution of India. Thus, the complete statement is SARFAESI Act has been declared valid by Supreme Court but it struck down Section 17(2) of the Act, in the case of Mardia Chemicals vs Union of India and others, which provided for deposit of 75% of the amount due to the bank before approaching DRT.

SARFAESI Act, 2002 is applicable to housing finance companies whose names are notified by the Central Government.

The act allows taking the matter to high courts only in some matters related to the implementation of the act in Jammu & Kashmir. However, high courts have been entertaining writ petitions under Article 226 (Power to issue writs) of the Constitution of India. It is possible where non-performing assets are backed by securities charged to the bank by way of hypothecation or mortgage or assignment.

Prevention of Money Laundering Act, 2002 is an act of the Parliament of India that was enacted to prevent money-laundering and to provide for confiscation of property derived from money-laundering. It also prevents use of banking system for money laundering.

The regulations exclude few persons from the application of the regulations. They are specific family trusts, ESOP trusts (conditions), employee welfare trusts, gratuity trusts, holding companies‘ within the meaning of Section 4 of the Companies Act, 1956, securitisation trusts, securitisation company, reconstruction company registered with RBI, any such pool of funds which is directly regulated by any other regulator in India.

The forms prescribed by the Central Government for registration are as under: FORM I - For creation and modification of charge. FORM II - For particulars of satisfaction of charge. FORM III - For securitisation or reconstruction of financial assets. FORM IV - For satisfaction of securitisation or reconstruction of financial assets. Thus, all the transactions need registration.

No banking company shall hold any immova­ble property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acqui­sition thereof or from the commencement of Banking Regulation Act. Provided further that the Reserve Bank may in any particular case extend the aforesaid period of seven years by such period not exceeding five years where it is satisfied that such extension would be in the interests of the depositors of the banking company.

Under sub-section (2) of section 11 of the BR Act, a foreign bank operating in India has to deposit and keep deposited with the Reserve Bank, an amount of Rs. 15 lac and if it has a place of business in Mumbai or Kolkata or both, Rs. 20 lac. The amount has to be kept in cash, unencumbered approved securities or partially in both. Statements (c) and (d) are not true. 

RBI had announced ‘Clean Note Policy’ in January 1999, for withdrawing soiled notes from circulation and pumping fresh notes into circulation u/s 35A BR Act. Also, RBI notified the Banking Ombudsman Scheme 2006 (on Dec 26, 2005) u/s 35A BR Act. KYC Guidelines were also introduced u/s 35A B R Act. Thus, only option 3 is correct.

The Reserve Bank shall, if it has been directed by the Cen­tral Government to cause an inspection to be made, and may, in any other case, report to the Central Government on any inspec­tion made under this section, and the Central Government, if it is of opinion after considering the report that the affairs of the banking company are being conducted to the detriment of the interests of its depositors. Also, option 4 is not true as acquisitions often result in a number of social benefits. Thus, option 4 is the correct answer. 

The Banking Regulation Act, 1949 is a legislation in India that regulates all banking firms in India.The Act provides a framework using which commercial banking in India is supervised and regulated. Thus, option 1 is the correct answer.