BANKING REGULATION ACT, 1949
1. Banking Regulation Act, 1949 is effective from 1-3-
1949.
2. Earlier it was known as Banking Companies Act, 1949.
3. The Act is not applicable to :-
(i) Primary Agricultural Credit Societies
(PACS),
(ii) Cooperative Land Mortgage/Development
Banks and
(iii) Non-Agricultural primary credit societies.
4. The B.R.Act, 1949 is applicable on all Banks
functioning in India.
IMPORTANT PROVISIONS ARE AS UNDER:
Section 5-b : BANKING: 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.
Section 5-f : DEMAND LIABILITIES: Demand Liabilities
are the liabilities which must be met on demand and TIME
LIABILITIES means liabilities which are not demand
liabilities.
Section 5-n : 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 UNSECURRED LOAN OR
ADVANCES MEANS A LOAN OR ADVANCE, NOT
SECURED.
Section 6-1. BANKING BUSINESS: a banking company
may be engaged in accepting deposits, borrowing money,
lending money, dealing in bills, collection of bills,
buying/selling foreign exchange, lockers, issuing letter of
credit, travelers cheques, mortgages, insurance business,
acting as trustee etc. or any other business which Central
Govt. may notify in the official Gazette.
Section 7 : USE OF WORD ‘BANKING’ : For Banking
companies carrying on banaking business in India to use at
least one word bank, banking, banking company in its name.
Section 8 :RESTRICTIONS : Restrictions on business of
trading of goods except realization of securities held by it.
Section 9 IMMOVABLE PROPERTY: Banks are
prohibited from holding any immovable property except for
own use. (Can retain upto 7 years).
Section 18 : 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. (RRBs and CCB are required to maintain
with itself cash reserve with minimum as 3% to maximum
6% of its TDL.
Section 22: LICENCING OF BANKING COMPANIES :
Obtaining of licence from RBI is essential.
Section 23 :BRANCH LICENCING: There is restrictions on
opening new and transfer of existing place of business.
Section 24 : STATUTORY LIQUIDITY RATIO : Every
Bank is required to maintain a percentage of its TDL by
way of Cash, Gold, unencumbererd securities maximum
upto 40%, as on last Friday of 2nd preceding fortnight. (for
RRBs and CCBs the requirement of SLR is 25%.
Section 29: PUBLISHING BALANCE SHEET OF THE
BANK: Every Bak has to publish its balance sheet as on last
working day of March every year on the Form A and P&L
account on Form B, of 3rd Schedule of this Act.
Section 30-I AUDIT :Balance Sheet is to be got audited from
qualified auditors (duly appointed by Bank.
Section 35 : INSPECTION OF BANKS: RBI is authorized
to undertake Inspection of banks and give directions, as
deemed appropriate. RBI has directed banks to round-off
transactions to interest rupee u/s 21 and Section 35.
Section 35A : Powers to give Direc tions to Banks: RBIhas
powers to give directions to banks in public interest or in the
interest of Banking Policy.
Section 45:SUSPENSION OF BUSINESS: RBI has power to
apply to Central Govt. for suspension of business by a
banking company and prepare a scheme of reconstruction
or amalgamation.
Section 45Y: PRESERVATION OF RECORDS: Central
Government has powers to frame rules specifying the
period for which a bank shall preserve its record or books.
45 ZA-ZF : NOMINAATION : Nomination facilities are
available on bank deposits, safe deposit of the articles and
Lockers.
Section 45Z: RETURN THE PAID INSTRUMENTS: Banks
are directed to return the paid instruments (original
documents) to a customer by keeping a true copy.
Customers obtaining original instruments have to
undertake to preserve the instruments as prescribed by
Central Govt. u/s 45Y.
Section 47A: PENALTY PROVISION: RBI can impose
penalty for various kinds of violations by banks. (e.g.
submission of various Returns such as B/S etc.in time or
default in maintenance of CRR &SLR .
Section 49 A:Other than a banking company/RBI/SBI no
person can accepts deposits of money withdrawable by
cheque.
Section 52:Central Govt. can make rules for all matters for
banking sector.
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PRUDENTIAL NORMS- INCOME RECOGNITION AND
ASSET CLASSIFICATION, NON PERFORMING ASSETS
AND PROVISIONING.
INTORDUCTION :
Prudential Norms were started by RBI
from 1-4-1992 and modified the original guidelines on a
number of occasions.
These Norms are applicable on Asset
classification, Income Recognition and Provisioning on
LOAN ASSETS based on the recommendations of
NARASIMHAM COMMITTEE in a phased manner.
WHAT IS AN “NPA”:
A Non Performing Asset is an advance where:
TERM LOANS: Interest and/or instalment of principal
amount remain overdue for a period of more than 90 days.
BILLS: The bill remain overdue for a period of more than
90 days.
OTHER ACCOUNTS: Any amount to be received remains
overdue for a period of more than 90 days.
CASH CREDIT / OVERDRAFT ACCOUNT :The account
remains out of order for a period of more than 90 days ( out
of order means an account where the balance is more than
sanctioned limit or drawing power.).
AGRICULTURE ACCOUNT : A loan granted for Short
duration crops will be treated as an NPA if the instalment of
the principal or interest thereon remains unpaid for TWO
CROP SEASONS beyond the due date.
For a loan for LONG DURATION CROPS the above period
would be ONE CROP SEASON beyond the due date.
(The period of 90 days was 180 days before 31-3-2004)
PERIOD OF CLASSIFICATION OF “NPA” ACCOUNTS:
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Classification Period
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Standard – Regular Any period.
Standard –Irregular 90 days
Sub-Standard 12 months
Doubtful- up to one year 12 months
Doubtful- Above 1 year but upto 3 yrs. 24 months
Doubtful- Above 3 years Uncertain period
Loss Uncertain
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IMPLICATIONSOF ‘NPA’ ACCOUNTS:
1. Banks cannot credit income to their profit and loss
Account to the debit of loan account unless recovery
thereof takes place.
2. Interest or other charges already debited but not
Recovererd have to be provided for and provision
on the amount of gross NPAs also to be made.
3. All loan accounts of the borrower would be treated
As NPA, if one account is NPA.
ASSETS CLASSIFICATION:
Loan accounts are required to be classified in FOUR
categories to assets :
1. Standaard Assets : Standard Assets is one which
does not disclose any problems and which does
not carry more than normal risk attached to the
business.
2. Sub-Standaard Assets: is one which has been
classified as NPA for a period not exceeding 18
months w.e.f.from the year ended March, 2001 (12
months w.e.f. March 31,2005)
3. Unsecured Substandard Accounts: Assets where no
security has been obtained (or value of security was
less than 10% of the balance) from the beginning,
are treated as unsecured substandard accounts.
4. Doubtful Assets. : A Doubtful asset isone which has
remained NPA for a period exceeding 18 months
w.e.f. 1-4-2000 ( Now 12 months w.e.f. 31st
March,2005).
5. Loss Assets : A Loss asset is one where loss has been
identified by the bank or Internal Auditors or the
RBI Inspectors, but the amount has not been
written off, wholly or partly. (where no security is
available).
ACCOUNTS WHERE ANY SECURITY /ECGC/DICGC
COVER (Insurance) IS AVILABLE ARE NOT TO BE
REPORTED UNDER LOSS CAATEGORY.
GROSS ‘NPA’s : Gross NPAs is the amount outstanding
in the borrowal account, in books of the bank other than
the interest which has been recorded and not debited to
borrowal account.
NET ‘NPA’: Net NPAs is the amount of Gross NPAs less
(a) interest debited to borrowal and not recoveererd and
not recognized as income and kept in interest suspense,
(b) amount of provisions held in respect of NPAs and (c)
amount of claim received and not appropriated.
PROVISIONING FOR LOAN ASSETS:
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Standard- General accounts: 0.40%
Direct Agril. & SME 0.25%
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Sub-Standard Assets –Secured 10%
--Unsecured 20%
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Doubtful Assets – upto 12 monthhs 20%
--More than 12 months but upto 30%
3 years.
--More than 3 years 100%
For unsecured portion of Doubtful accounts 100%
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Loss Account (Assets) 100%
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