BRBL CAIIB notes – Unit 1

Dear CAIIB Aspirants,

These notes are a part of 2024 CAIIB Video library course of Banking Regulations and Business Laws (BRBL)  by Motivational Banker. These notes are intended to help you prepare better for your CAIIB exam.

These notes are a sample version of the full PDFs prepared by team Motivational Banker.

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Module-A

Unit-1 Legal Framework of Regulation of Banks

Banks regulated by BR Act 1949 & RBI Act 1934 through RBI and Central Govt.

 Sec 5 (b) B R Act – Banking means accepting deposits from public, for lending and investment. Deposits can be withdrawn by cheque, OD or otherwise.

U/s 49A of BR Act – banks can accept deposits, withdrawable by cheque. Other entities cannot.

 License for banking – U/s 22 of B R Act, RBI license is required to commence or carry on banking business.

 Use of words ‘bank’ – Use of word bank in bank’s name is mandatory. Other persons cannot use this word.

Business of banking – Defined U/s 6 (1) B R Act.

It Includes borrowing, lending, accepting deposits, issuing LC, bank guarantee, buying and selling of FC, collection of bills, providing safe deposit etc.

 U/s 8, banks cannot do trading activities (other than securities).

 U/s 9, banks cannot hold non-bank assets (say IP) beyond 7 years, except for their own use.

U/s 17, banks are required to transfer, out of the balance of profit as disclosed in P/L A/c, a sum not less than 20% of such profit to Reserve Fund.

Constitution of Banks

There are different categories of banks:

(1) Public Sector Banks             (2) Regional Rural Banks           (3) Cooperative Banks

(4) private Banks                        (5) Small Finance Banks            (6) Payment Banks

Public sector banks (created under respective Act)

State Bank of India ( SBI Act 1955)

6 subsidiaries of SBI was constituted under SBI(Subsidiary Bank) Act 1959

14 Commercial banks Nationalized on 19 July 1969

later on 6 more commercial banks nationalised on 15 Apr 1980.

SBI merges 5 associates of SBI and Bhartiya Mahila Bank with SBI in 2017.

Regional Rural Banks  were set up under RRB Act (1976) to provide financial assistance to different segments of rural population engaged in rural activities.

Cooperative Banks

• Registered as a coop society under
• Central Act  (if operating in more than one state) or
• State Act  ( if operating in one State).

Private Banks

Constituted under Companies Act 1956 under Sec 5(C) of BR Act 1949

Small Finance Banks

Constituted under Sec 5(C) of BR Act 1949 and governed by provision of RBI Act 1934.

Payment Banks

Registered as a public Ltd. Company under companies Act 2013 and licensed under Sec 22 BR Act 1949.

Banking Regulation Act (BR Act-1949)

Objective: It was enacted to consolidate and amend the law relating to banking and provide a framework to regulate banking companies.

• Act extended in 1965, to cooperative banks.
• Does not apply to Primary Agri Coop Societies & Coop Land mortgage banks
• Act regulates entry of banks(Licensing) u/s 22.
• Many provisions to regulate banking business such as loans, rate of interest, reserve requirements etc.
• Act also deals with control over management of banking companies
• Also deals with suspension and winding up of banking business.

RBI Act 1934

Objective: To constitute RBI for

• regulating issue of bank notes
• keeping reserve money – CRR
• operating currency and credit system.
• RBI Act deals with constitution, powers and functioning of RBI.
• Does not deal with regulation of banking except Sec 42 relating to cash reserves.

Reserve Bank of India :

• U/s 3, of RBI Act, RBI took over currency functions from Govt.
• RBI has responsibility to regulate issue of bank notes, keep reserves and operate currency and credit system.
• RBI functions under Central Board of Directors. It consists of Governor and 4 Deputy governors appointed by Central Govt.
• Bank also has local Boards at Mumbai, Chennai, Delhi and Kolkata.
• RBI is sole authority for issue and management of currency (Sec 22). It can issue notes min Rs.2 and max Rs.10000.

Regulatory functions of RBI

• RBI functions as a banker to Central Govt. (Sec 20).
• In case of State Govt. RBI functions as banker based on agreement.
• RBI provided ways and means advances to government.
• RBI is a body corporate.
• Capital held by Central Govt.
• Central Office in Mumbai and Local boards at Mumbai, Kotkata, Chennai & Delhi.
• Functions under supervision of Central Board of Directors, headed by Governor appointed by Govt. Board also has 4 Dy. Governors.
• RBI regulates the banking system under B R Act 1949.

RBI powers as regulator and supervisor

• licensing of banks and cancellation of license
• appoint and remove managerial persons
• give directions
• inspection and supervision
• Conduct audit
• collection of credit information
• Supersede BoD of a bank for max. 12 months & appoint administrator
• Impose penalties
• Recommend moratorium,  amalgamation or winding up.

Govt. as regulator of banks

• RBI is primary regulator but Central Govt. has been conferred powers under RBI Act and B R Act
• holds entire capital of RBI and appoints Governor and members of Central     Board or remove them.
• can issue directions to RBI u/s 7 of RBI Act, in public interest
• can suspend operation of BR Act or give exemption from any provisions.
• can notify different type of banking business (Sec 6).
• makes rules U/s 52 and 45Y (preservation of records) of B R Act.
• Approval for formation of subsidiary for certain business (Sec 19)
• Issue of directions for inspection of banks. (Sec 35)
• Power to acquire undertakings (Sec 36 AE)
• Suspension of business and amalgamation (Sec 45).
• has powers to take decision as majority shareholder in PSB
• collects information on financial transactions in banks through office of Financial Intelligence Unit (FIU-IND), established in Nov 2004, under PML Act.

Important provisions of BR Act-1949