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The banking companies act came into Introduction in 1980, which was designed for facilitating the transferring and acquisition of undertakings of some specific banking companies. These companies are decided based on size, budget, rates, coverage, resources, etc. However, the aim of providing Undertakings is to flourish the economy’s growth, maintain the rates in the market, and for the welfare of Indians. The banking companies act is based on Article 39 of the Indian constitution. Along with this, all the principles and fundamentals written in this act secure the provision and principles of article 39 of the constitution of India.
Banking Companies Act
The government of India introduced the banking companies act on 15 April 1980. Under this, definitions of some specific terms like banking companies, custodians, corresponding new banks, existing banks, and so forth are separately defined. Let’s understand the definition of different terms under the banking companies act.
Banking Company
According to section 591, a banking company is an organization that does not include any foreign interference and is not connected with any other foreign company.
Corresponding New Bank
According to the 1st schedule of the Indian constitution, the corresponding new bank has relations with the existing bank. Then, the bank, which is specified in column 2 under the 1st schedule of the Indian constitution, is the corresponding bank.
Custodian
A person who performs all the functions written in section 7 of the banking companies act is the custodian.
Existing Bank
The bank specified in column 1 is under the 1st schedule of the Indian constitution.
Prescribed
It is suggested by the regulations written under the banking companies act of 1980.
Features of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
Let’s understand the different features of the banking companies act 1980.
- All the definitions and expressions described under this act are based on the banking regulation act introduced in 1949. So, this act follows some principles and fundamentals of the banking regulation act. Although, the companies act of 1956 also contains the expression and fundamentals which are defined under the banking companies act 1980.
- If any bank has a corresponding bank, then its paid-up capital is written under section 1 of this act. However, the paid-up capital of corresponding banks is considered equal to the existing bank.
- According to the provisions of the banking companies act, every corresponding bank has three thousand crores, which is subdivided into three hundred crores. These three hundred crores have completely paid-up shares, and each share has a rate of 10 rupees.
- The banking companies act follows one provision of the Depositories Act, 1996. Under this provision, the depositors should maintain a separate register of details related to the bank’s beneficiaries. All the decision management by owners should also be described.
- The undertaking of any existing bank contains rights, assets, powers, privileges, authority, and flowing or unflowing cash.
- All types of registers, records, and details of any existing bank consist of all types of borrowing and liabilities. It means that in all documents, borrowing and liabilities should be written properly.
- Under this act, any contract and bond will directly impact the functioning of both existing banks and corresponding banks.
- According to section 4 of this act, the Undertakings of the existing banks must be transferred and delivered to the corresponding banks.
- The corresponding bank location must be decided based on the location of the existing bank or central government. Either it falls near the existing bank or any firm of the central government.
- The Board of Directors does the decision management of corresponding banks. They will decide or select the person for the specific designation. The Board of Directors also decides the practices done by every individual on different posts.
CRR: Cash Reserve Ratio
The full form of CRR is the cash reserve ratio. The CRR can be described as the percentage of share from the total deposit of a bank that the Reserve Bank of India authorizes. The RBI keeps it in the form of liquid cash, which will be used in future strategies and decision management. CRR (Cash reserve ratio) plays an important role in determining the actual base rates of any bank. Base rates are the minimum rates below which banks’ lending of funds is prohibited.
Conclusion
Banking companies act, 1980 plays a vital role in maintaining the economy of India. The rules written under this act provide a thorough insight into India’s banks. Every bank of India follows the principles written in the 21 sections of this act. It plays a major role in maintaining the economy, interest rates, and market environment. Most of its fundamentals are based on the Banking Regulation Act 1949. The idea of providing undertakings helps maintain the flow of cash within the existing banks and their corresponding banks. It ensures that corresponding banks will get all the services and grow faster.
