Banking Regulation Act

In 1949, India started a regulation act for all the banking firms all over India. Initially, this regulation was passed as the Banking Companies act 1949. It was started in action on March 16th, 1949. In the year 1966, on March 1st, it was changed to the banking regulation act 1949. In Jammu and Kashmir, it has been applied since 1956. Though initially, it was for banking companies, after the 1956 amendment, it has been applied to cooperative banks.

All the changes to the banking sector in the 2020 amendment bring cooperative banks under the Reserve bank of India.

State Bank of India, a State under Article 12 

The State Bank of India (SBI) is the largest centralized bank all over India. Though it comes under the central government, it has some other features, according to the Indian constitution. Article 12 of the Indian constitution states all the state and authorities’ rules, power, and laws. 

Not only about a state, but it states about all local authorities under the territory of India. According to that, SBI can also be controlled by its authorities and governing body according to their rules. With the help of the banking regulation act and article 12, the state bank of India comes under the state.

SBI and the Reserve Bank of India (RBI) also come under the state under article 12 of the Indian constitution.

Objectives of Banking regulation act, 1949

By coming to action, this act has some objectives nationwide. First, ensuring that all banks come under one regulation act regulates the opening of new branches and the maintenance of liquid assets.

Let’s have a look at some of the objectives.

Minimum Capital

Banks had their own rules because they were independent banks and had the independence of capital. For these, many banks had failed over time. So, a minimum capital was needed to be kept for every bank. The banking regulation act of 1949 brought this to action. Through this, all banks need to keep a minimum capital.

Competition Elimination

Due to independent banks, they used to have competition among them. This was not good for customers, and banks often failed due to this. So, it was essential to eliminate competition among banks. This act has also started regulating the opening of new branches through licensing and changing the location of existing branches.

Incorporation of Banks

It was too much needed to incorporate all the banks. This helped depositors and people to keep interested in depositing in banks. The banking regulation act helps incorporate banks by fixing the cash and liquid reserve ratio.

Power to Reserve Bank of India

It is one of the most accepted rules of this regulation. With the regulation came into action, many powers were transferred to the Reserve Bank of India (RBI). RBI can appoint, reappoint, or even can remove bank personnel. RBI can get appointed, reappointed, or removed by the chairman, director, and officers.

Amalgamation of Banks

Weaker banks need to get support from other stronger banks to run smoothly and provide service. So, with the help of the banking regulation act of 1949, weaker banks got amalgamated with stronger banks.

This process can happen at any time. For example, in 2021, some of the banks got amalgamated, Where the more robust bank was called anchor bank, and the weaker one was called merged bank.

Types of Banks

With the help of the regulation, the banks have been categorized differently.

• Centralized banks
• State-owned banks
• Private banks
• Investment banks
• Universal, commercial, and retail banks.
• Payment banks
• Small Finance Banks.

Transfer of Banks

The most practical action was taken with the help of this regulation act was the transfer of a bank. With the help of this regulation transfer of undertaking of the Imperial Bank happened. The Indian government took the authority and made it the largest bank in India. This bank is known as the State Bank of India (SBI).

Conclusion

With the help of the banking regulation act of 1949, India has taken authority over banks and centralized all the banks. With the help of this, all banks need to keep a minimum capital. They have a particular cash and liquid reserve ratio. Also, the government of India has incorporated banks and eliminated competition by controlling new and existing branches.

This act also provides a handsome power to the Reserve Bank of India. These and banks also get amalgamated while it’s essential and gets transferred. These regulations are to keep the interest of depositors in the bank.