Incorporation, capital management and business




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Explanation  For the purposes of this section—
(a) "average daily balance" shall mean the average of the balance held at the close of business on each day of a 5[fortnight];

(b) 6["fortnight" shall mean the period from Saturday to the second following Friday, both days inclusive;]


(c) liabilities" shall not include 
(i) the paid up capital or the reserves or any credit balance in the profit and loss account of the bank;

(ii) the amount of any loan taken from the bank or from the Development Bank 7[or from the Exim Bank] 8[or from the Reconstruction Bank] 9[or from the National Housing Bank] or from the 10 [National Bank] 11[or from the Small Industries Bank];

____________________________________________

I Subs. by ss 40 and 41 by Act 23 of 1947.

2 Subs. by Act 1 off 984, w.e.f.15 2 198.1.

3 Repealed by Act 11 of 1947, w.e.f.1 4 1947

4 Subs. by Act 9 of 1991, for the words "fifteen percent"

5 Subs. by Act 1 of 1984,w.e.f. 29 3 1985.

6 Subs. by Act I of 1984, w.e.f.29 3 1985.

7 Ins. by Act 28 of 1981,w.e.f. I 1 1982.

8 Ins. by Act 62 of 1984,w.e.f. 29 3 1985.

9 Ins. by Act 53 of 1987,w.e.f. 9 7 1988.'

10. Subs. by Act cal of 1981,w.e.f. 1 5 1982.

11. Ins, by Act 19 of 1989.w.e.f. 7 3 1990.
The Reserve Bank of India Act. 1934 25


  1. in the case of a State co operative bank, also any loan taken by such bank from a State Government 1[or from the National Cooperative Development Corporation established under the National Co operative Development Corporation Act, 1962 (26 of 1962)] and any deposit of money with such bank representing the reserve fund or any part thereof maintained with it by any co operative society within its area of operation;




  1. in the case of a State co operative bank, which has granted an advance against any balance maintained with it, such balance to the extent of the amount outstanding in respect of such advance:




  1. 2[in the case of a Regional Rural Bank, also any loan taken by such bank from its Sponsor Bank]:

(d) the aggregate of the "liabilities" of a scheduled bank which is not a State co operative bank, to


(i) the State Bank;

(ii) a subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959):

(iii) a corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act,1970 (5 of 1970);

(iiia) 3[a corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);]

(iv) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(v) a co operative Bank; or

(vi) any other financial institution notified by the Central Government in this behalf;
shall be reduced by the aggregate of the liabilities of all such banks and institution to the scheduled bank;
(e) the aggregate of the "liabilities" of a scheduled bank which is a State cooperative bank, to
(i) the State Bank;

(ii) a subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act. 1959 (38 of 1959);

(iii) a corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of' Undertakings) Act, 1970 (5 of 1970);

(iiia) 4[corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980)1;

(iv) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); or

_____________________________



I Ins. by Act I of 1984, w.e.f. 29 3 1985

2 Ins. by Act I of 1984, w.e.f. 29 3 1985.

3 Ins. by Act 1 of 1984, w.e.f. 29 3 1985.

4 Inserted by Act I of 1984, w.e.f. 29 3 1985.
26 The Reserve Bank of India Act, 1934

(v) any other financial institution notified by the Central Government in this behalf.


shall be reduced by the aggregate of the liabilities of all such banks and institution to the State co operative bank.
(1A) Notwithstanding anything contained in sub section (1), the Bank may, by notification in the Gazette of India. direct that every scheduled bank shall, with effect from such date as may be specified in the notification, maintain with the Bank, in addition to the balance prescribed by or under sub section (1), an additional average daily balance the amount of which shall not be less than the rate specified in the notification, such additional balance being calculated with reference to the excess of the total of the demand and time liabilities of the bank as shown in the return referred to in sub section (2) over the total of its demand and time liabilities at the close of business on the date specified in the notification as shown by such return so however, that the additional balance shall, in no case, be more than such excess.
1[Provided that the bank may, by a separate notification in the Gazette of India, specify different dates in respect of a bank subsequently, included in the Second Schedule.]
(1 AA) Notwithstanding anything contained in sub section (1) or sub section (1 A). it shall not be necessary for any scheduled bank to maintain with the Bank any balance which shall be more than 2 [twenty per cent] of the total of its demand and time liabilities as shown in the return referred to in sub section (2).
(IB) where any scheduled bank maintains, in pursuance of a notification issued under the proviso to sub section (1) or under sub section (IA), any balance with the Bank the amount of which is not less than that required to be maintained by such notification, the Bank may pay to be scheduled bank interest at such rate or rates as may be determined by the bank from time to time on the amount by which such balance actually maintained is in excess of the balance which the scheduled bank would have to maintain. if no such notification was issued.
Provided that no interest shall be payable on any such amount actually maintained as is in excess of the balance required to be maintained by or under sub section (1) or under sub section (l A).
Provided further that where the Bank does not, under sub section (5), demand the payment of the penalty imposed by sub section (3), it may pay interest at such rate or rates as may be determined by the bank from time to time on the amount actually maintained with it by the scheduled bank, notwithstanding that such amount is less than the balance required to be maintained in pursuance of a notification issued under the proviso to sub section (1) or under sub section (l A).
3[(1C) The Bank may, for the purposes of this section, specify front time to time with reference to any transaction or class of transactions that such transaction or transactions shall be regarded as liability in India of a scheduled bank, and if any question arises as to whether any transaction or class of transactions shall be regarded, for the purposes of this section. as liability in India of a scheduled bank, the decision of the Bank thereon shall be final.]

___________________________________



1 Ins. by Act 1 of 1984, w.e.f. 29-3-1985

2. Subs. By Act 9 of 1991, for the words “fifteen per cent”.

3 Ins. by Act 1 of 1984, w.e.f. 29-3-1985
The Reserve Bank of India Act, 1934 27

(2) Every scheduled bank shall send to the Bank a return signed by two responsible officers of such bank showing—




    1. the amount of its demand and time liabilities and the amount of its borrowings from banks in India, classifying them into demand and time liabilities,

(aa) [Omitted by Act 51 of 1974, S. 11].

  1. the total amount of legal tender notes and coins held by it in India,

  2. the balance held by it at the Bank in India,

  3. the balances held by it at other banks in current account and the money at call and short notice in India,

  4. the investments (at book value) in Central and State Government securities including treasury bills and treasury deposit receipts,

  5. the amount of advances in India,

  6. the inland bills purchased and discounted in India and foreign bills purchased and discounted,

'[at the close of business on each alternate Friday and every such return shall be sent not later than seven days after the date to which it relates].
Provided that the Bank may, by notification in the Gazette of India, delete or modify or add to any of the particulars specified in the foregoing clauses:
Provided further that where 2[such alternate] Friday is a public holiday under the Negotiable Instruments Act,1881 (26 of 1881), for one or more offices of a scheduled bank, the return shall give the preceding working day's figures in respect of such office or offices, but shall nevertheless be deemed to relate to that Friday.
3[Provided also that where the Bank is satisfied that the furnishing of a fortnightly return under his sub section in impracticable in the case of any scheduled bank by reason of the geographical position of the bank and its branches, the bank may allow such bank
(i) to furnish a provisional return for the fortnight within the period aforesaid to be followed by a final return not later than twenty days after the date to which it relates, or
(ii) to furnish in lieu of a fortnightly return a monthly return to be sent not later than twenty day after the end of the month to which it relates giving the details specified in this sub section in respect of such bank at the close of business for the month.]
4[(2A) Where the last Friday of a month is not an alternate Friday for the purpose of sub section(2), every scheduled bank shall send to the Bank, a special return giving the details specified in sub section (2) as at the close of business on such last Friday or where such last Friday is a public holiday under the Negotiable Instruments Act, 1881 (26 of 1881), as at the close of business on the preceding working day and such return shall be sent not later than seven days after the date to which it, relates].
______________________________

1 Subs. by Act I of 1984, w.e.f.29-3-1985.

2 Ins. by Act I of 1984. w.e.f.29-3-1985.

3 Subs by Act I of 1984 w.e.f29.3.1985

4 Ins by Act I of 1984.w.e.f. 29.3.1985

28 The Reserve Bank of India Act, 1934
(3) If the average daily balance held at the Bank by a scheduled bank during any 1[fortnight] is below the minimum prescribed by or under sub section (1) or sub section ( la), such scheduled bank shall be liable to pay to the Bank in respect of that 2[fortnight] penal interest at a rate of three percent above the Bank rate on the amount by which such balance with the Bank falls short of the prescribed minimum, and if during the next succeeding 3[fortnight] such average daily balance is still below the prescribed minimum, the rates of penal interest shall be increased to a rate of five per cent above the bank rate in respect of that; 4[fortnight] and each subsequent 5[fortnight] during which the default continues on the amount by which such balance at the Bank falls short of the prescribed minimum.
(3A) Where under the provisions of sub section (3) penal interest at the increased rate of five percent above the bank rate has become payable by a scheduled bank, if thereafter the average daily balance held at the Bank during the next succeeding 6[fortnight] is still below the prescribed minimum,—
(a) every director, manager or secretary of the scheduled bank, who is knowingly and willfully a party to the default, shall be punishable with fine which may extend to five hundred rupees and with a further fine which may extend to five hundred rupees for each subsequent 7[fortnight] during which the default continues. and
(b) the Bank may prohibit the scheduled bank from receiving after the said

8[fortnight] any fresh deposit,
and, if default is made by the scheduled bank in complying with the prohibition referred to in clause (b), every director and officer of the scheduled bank who is knowingly and willfully a patty to such default or who through negligence or otherwise contributes to such default shall in respect of each such default be punishable with fine which may extend to five hundred rupees and with a further fine which may extend to five hundred rupees for each day after the first day on which a deposit received in contravention of such prohibition is retained by the scheduled bank.
Explanation  In this sub section "officer" includes a manager, secretary, branch manager, and branch secretary.

(4) Any scheduled bank failing to comply with the provisions of sub section (2) shall be liable to pay to the Bank a penalty of one hundred rupees for each day during which the failure continues.


(5) (a) The penalties imposed by sub sections (3) and (4) shall be payable within

a period of fourteen days from the date on which a notice issued by the

Bank demanding the payment of the same is served on the scheduled bank,

and in the event of failure of the scheduled bank of pay the same within

such period, may be levied by a direction of the principal civil court

having jurisdiction in the area where an office of the defaulting bank is


_______________________________

I Subs. by Act I of 1984, w.e.f. 29 3 1985.

2 Subs. by Act 1 of 1984, w.e.f. 29 3 1985.

3 Subs. by Act I of 1984, w.e.f. 29 3 1985.

4 Subs. by Act I of 1984, w. e. f. 29 3 1985.

5 Subs. by Act 1 of 1984, we.f. 29 3 1985.

6 Subs. by Act I of 1984, w. e. f. 29 3 1985.

7 Subs. by Act 1 of 1984, w.e.f. 29 3 1985.

8 Subs. by Act I of 1984, w.e.f. 29 3 1985.
The Reserve Blank of India Act. 1934 29

situated, such direction to be made only upon an application made i. this behalf to the court by the Bank;


(b) When then court makes a direction under clause (a), it shall issue a certificate specifying the sum payable by the scheduled bank and every such certificate shall be enforceable in the same manner as if it were a decree made by the court in a suit:
(c) notwithstanding anything contained in this section, if the Bank is satisfied that the defaulting bank had sufficient cause for its failure to comply with the provisions of sub sections (1), (1 A) or (2), it may not demand the payment of the penal interest or the penalty, as the case may be.
(6) The Bank shall, save as hereinafter provided, by notification in the Gazette of India;



  1. direct the inclusion in Second Schedule of any bank not already so included which carries on the business of banking in India and which—

(i) has a paid up capital and reserves of an aggregate value of not less than five lakhs of rupees, and

(ii) satisfies the Bank that its affairs are not being conducted in a manner detrimental to the interests of its depositors, and

(iii) is a State co operative bank or a company as defined in section 3 of the Companies Act,1956 (1 of 1956), or an institution notified by the Central Government in this behalf or a corporation or a company incorporated by or under any law in force in any place outside India;


(b) direct the exclusion from that schedule of any scheduled Bank,
(i) the aggregate value of whose paid up capital and reserves becomes at any time less than five lakhs of rupees, or

(ii) which is, in the opinion of the Bank after making an inspection under section 35 of the Banking Regulation Act, 1949 (10 of 1949), conducting its affairs to the detriment of the interests of its depositors or,

(iii) which goes into liquidation or otherwise ceases to carry on banking business.
Provided that the Bank may, on application of the scheduled bank concerned and subject to such conditions, if any, as it may, impose, defer the making of a direction under sub clause (i) or sub clause (ii) of clause (b) for such period as the Bank considers reasonable to give the scheduled bank an opportunity of increasing the aggregate value of its paid up capital and reserves to not less than five lakhs of rupees, as the case may be, of removing the defects in the conduct of its affairs;
(c) alter the description in that schedule whenever any scheduled bank changes its name
Explanation  In this sub section, the expression "value" means the real or exchangeable value and not the nominal value which may be shown in the books of the bank concerned; and if any dispute arises in computing the aggregate value of the paid-up capital and reserves of a bank, a determination thereof by the Bank shall be final for the purposes of this sub section.
30 The Reserve Bank of India Act, 1934

'[(6A) In considering whether a State co operative bank or a regional rural bank should be included in or excluded from Second Schedule, it shall be competent for the Bank to act on a certificate from the National Bank on the question whether or not a State co operative bank or a regional rural bank, as the case may be, satisfies the requirements as to paid up capital and reserves or whether its affairs are not being conducted in a manner detrimental to the interests of its depositors.]


(7) The Bank may, for such period and subject to such conditions as may be specified, grant to any scheduled bank such exemptions from the provisions of this section as it thinks fit with reference to all or any of its offices or with reference to the whole or any part of its assets and liabilities.
43. Publication of consolidated statement by the Bank  The Bank shall cause to be published each 2[fortnight0 a consolidated statement showing the aggregate liabilities and assets of all the scheduled banks together, based on the returns and information received under this Act or any other law for the time being in force.
43A. Protection of action taken in good faith  (1) No suit or other legal proceeding shall lie against the Bank or any of its officers for anything which is in good faith done or intended to be done in pursuance of section 42 or section 43 or in pursuance of the provisions of chapter IIIA.
(21 No suit or other legal proceeding shall lie against the Bank or any of its officers for any damage caused or likely to be caused by anything which is in good faith done or intended to be done in pursuance of section 42 or section 43 or in pursuance of the provisions of chapter IIIA.
44. Power to require returns from co operative banks  [Repealed by the Banking Laws (Application to Co operative societies) Act, 1965 (23 of 1965), s.7 (w.e.f.1 3 1966)].
3[45. Appointment of agents  (1) Unless otherwise directed by the Central Government with reference to any place, the Bank may, having regard to public interest, convenience of banking development and such other factors which in its opinion are relevant in this regard, appoint the National Bank, or the State Bank, or a corresponding new bank constituted under Sec. 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), as its agent at all places, or at any place in India for such purposes as the Bank may specify.
(2) When any Bank is appointed by the Bank as its agent under sub section (1) to receive on behalf of the Bank any payment required to be made into the Bank, or any bill, hundies or other securities required to be delivered into the Bank, under any law or rule, regulations or other instructions having the force of law,
_______________________________

I Ins. by Act 61 of 1981, w.e.f. 1 5 1982.

2 Subs. by Act 1 of 1984, w.e.f. 29 3 1985.

3 Subs. by Act 61 of 1981, w.e.f. 1 5 1982.
The Reserve Bank of India Act, 1934 31

rule, regulations or other instructions having the force of law, the same may be paid or delivered into the bank so appointed as the agent of the Bank.]


CHAPTER IIIA

COLLECTION AND FURNISHING OF CREDIT INFORMATION
45A. Definitions In this Chapter, unless the context otherwise requires—
(a) "banking company" means a banking company as defined in section 5 of the Banking Regulation Act, 1949 (10 of 1949), and includes the State Bank of India, any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), any corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), and any other financial institution notified by the Central Government in this behalf;
(b) "borrower" means any person to whom any credit limit has been sanctioned by any banking company, whether availed of or not, and includes
(i) in the case of a company or corporation, as subsidiaries;

(ii) in the case of a Hindu undivided family, any member thereof or any firm in which such member is a partner;

(iii) in the case of a firm, any partner thereof or any other firm in which such partner is a partner; and

(iv) in the case of an individual, any firm in which such individual is a partner;




  1. "credit information" means any information relating to—

(i) the amounts and the nature of loans or advances and other credit facilities granted by a banking company to any borrower or class of borrowers;

(ii) the nature of security taken from any borrower or class of borrowers for credit facilities granted to him or to such class;

(iii) the guarantee furnished by a banking company for any of its customers or any class of its customers;

(iv) the means, antecedents, history of financial transactions and the credit worthiness of any borrower or class of borrowers;

(v) any other information which the Bank may consider to be relevant for the more orderly regulation of credit policy.


45B. Power of Bank to collect credit information The bank may—
(a) collect, in such manner as it may think fit, credit information from banking

companies; and

(b) furnish such information to any banking company in accordance with the provisions of section 45D.
45C. Power to call for returns containing credit information  (1) For the purpose of enabling the Bank to discharge its functions under this Chapter, it may at any time direct any banking company to submit to it such statements relating to such credit

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