BRBL CAIIB notes – Unit 2
Unit-2 Control over organizations of Banks
Licensing of banking Companies
- To do business, Licensing required from RBI – U/s 22 BR Act 1949.
- RBI discretion to grant the license or not.
Conditions for License are
- whether company will be able to pay the deposits.
- conduct the business,
- has adequate capital and making profits,
- public interest will be served
- potential of banking business in area of operation, etc.
- RBI can cancel the license u/s 22 (4) of B R Act, where RBI is satisfied that company has stopped the business or has not complied with conditions.
- Co. can appeal to Central Govt. against RBI decision of cancelation of license within 30 days of date of order.
Branch Licensing
- U/s 23 of BR Act, license is required from RBI (RBI now follows annual branch authorization policy).
- RBI may impose any conditions while granting the permission.
- In case of RRBs, the application will be routed through NABARD.
Capital of Banks
Paid-up, subscribed capital and authorised capital: (Sec 12)
- Subscribed capital should be min half of authorised and paid capital should be min half of subscribed capital.
- Banks can issue equity capital; preference shares as innovative instruments under Basel 3 guidelines of RBI.
Paid-up Capital and reserves: (Sec 11)
Foreign banks-Min Rs. 15 lacs (for Mumbai, Kolkata Rs.20 lac). 20% of profits each year to be deposited with RBI)
Indian banks – Branches > one State – Rs.5 lac (Mumbai and Kolkata Rs.10 lac). Branch in one State Rs. 1 lac.
Shareholding in Banking companies:
- Voting rights of single shareholder – Max 10% of total voting rights in PSBs and 26% for PVT banks.
- Application for transfer of shares above prescribed level (>5% of paid-up capital by single person), it should be referred to RBI.
- Commission, brokerage, and discount – Max 2.5% of price, including premium, at which shares are issued. (Sec 13)
- Dividend – should be given out of current year profits after writing off of capitalized expenses (Sec 15).