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Banking Law and Practice in India
In the previous two centuries, the Banking Law and Practice in India has grown from a cocoon to a butterfly. Banking was mostly handled by business people such as the Shroffs, Mahajans, Seths, and Sahukars in ancient times. They did their customary job of loaning money to merchants and craftsmen, and they occasionally put their money in the monarchs’ war chest. With the establishment of the General Bank of India and the Hindustan Bank in the later decades of the 18th century, modern banking began. The three presidential banks – Bank of Madras, Bombay, and Calcutta – were established after that.
Salient Features of Banking Laws in India
The following are some of the banking laws in India that are primarily or partially connected to how banks operate in the country. Let’s look into such Banking laws and their Salient Features:
Reserve Bank of India Act 1934
It was adopted to establish RBI with the mission of regulating the issuance of banknotes, maintaining reserves to preserve monetary system stability, and properly operating the nation’s currency and credit system. The RBI’s constitution, powers, and functions are primarily covered under the Act. Except for Section 42, which deals with cash reserve ratio regulation, and Section 18, which primarily deals with direct factoring of bills of promissory notes, the act does not engage with banking system regulation. Thus, the RBI act is one of the salient features of banking law in India.
1949 Banking Regulation Act
It is regarded as one of the essential legislative frameworks for Banking law in India. It was first enacted as the Banking Companies Act of 1949 before being renamed the Banking Regulation Act of 1949 (“The BR Act”). The BR Act, like the RBI Act, gives banks a lot of rules to follow.
The Prevention of Money Laundering Act of 2002 (PMLA)
With three significant aims, the PMLA focuses on preventing money laundering in India and is known to be one of the salient features of Banking Law in India. To prevent and control money laundering, as well as to confiscate and take property derived from laundered funds, as well as to address any other issues related to money laundering in India.
The Foreign Exchange Management Act of 1999
The Foreign Exchange Management Act of 1999 governs foreign exchange regulation and management. Its goal is to reform foreign exchange rules so that financial markets can thrive and foreign trade, as well as payments, can grow. It took effect on June 1, 2000.
1963 Limitation Act
It is regarded as one of the most significant things in the field of lending. This Act allows the lending bank to take legal action even against a borrower if he fails on his loan instalments. The Limitation Act of 1963 establishes a time limit within which a suit, an appeal, or any other type of application could be filed.
The Legal Services Authority Act establishes Lok Adalats
The Legal Services Authorities Act of 1987 is known for establishing Lok Adalats. They were created to provide a nationwide system for resolving disputes. Lok Adalats obtain jurisdiction by permission or when the court is confident that the matter may be resolved in Lok Adalats.
The SARFAESI Act was Enacted in 2002
The act’s salient feature is to control the securitisation and reconstruction of financial assets, as well as the enforcement of security interests and related problems. The Securitization Act, often known as the Bankruptcy Code, allows banks and financial institutions to collect debts in non-performing assets (NPAs) without the participation of the courts.
The Lenders Liability Act (LLA) protects Lenders from Lawsuits
RBI has finalised a set of norms of conduct known as “the Fair Practice Code for Lenders” and encouraged banks to adopt the guidelines based on the suggestions of the Government of India’s working group on Lenders’ Liability Laws. All banks proceeded to create their own variants of Fair Practice Codes in accordance with the principles, which they began implementing on November 1, 2013.
Ombudsman for Banking
It’s a procedure for resolving complaints. The service can be used to file a complaint about a bank’s lack of service. A bank customer can file a complaint about the bank’s services if they are not up to par.
Conclusion
Banking law in India has a lot of technical aspects, and the highly regulated industry necessitates a lot of specialist legal knowledge. Regulations will undoubtedly change regularly, and practices will continue to evolve in order to remain relevant. Banking and finance is a highly innovative industry that is constantly on the move, presenting new products to the market. Before these unique items are offered to the market, a banking lawyer must vet and alter them. New and innovative ideas always bring a new set of legal, regulatory, and tax compliances and obstacles, which must be addressed through litigation and the establishment of critical precedents. As a result, lawyers are virtually always involved in every phase of the financial banking industry.
