Banking Law Unit - 1

UNIT-1
CHAPTER II
INCORPORATION, 1[CAPITAL], MANAGEMENT AND BUSINESS
1. Establishment and incorporation of Reserve Bank.
(1) A bank to be called the Reserve Bank of India shall be constituted for the
purposes of taking over the management of the currency from the 2[Central
Government] and of carrying on the business of banking in accordance with the
provisions of this Act.
(2) The Bank shall be a body corporate by the name of the Reserve Bank of India,
having perpetual succession and a common seal, and shall by the said name sue
and be sued.
3
[4. Capital of the Bank.
The capital of the Bank shall be five crores of rupees.]
5. [Increase and reduction of share capital.]
[Rep. by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949)].
6. Offices, branches and agencies.
The Bank shall, as soon as may be, establish offices in Bombay, Calcutta, 4[Delhi
and Madras] 5[* * *] and may establish branches or agencies in any other place in
1
Subs. by Act. 62 of 1948, s.7 and Sch., for “SHARE CAPITAL” (w.e.f. 1-1-1949).
2
Subs. by the M. O. 1937, for “G. G. in C.”.
3
Subs. by Act 62 of 1948, s.7 and Sch., for the original section (w.e.f. 1-1-1949).
4
Subs. by Act 11 of 1947, s.5, for “Delhi, Madras and Rangoon” (w.e.f. 1-4-1947).
5
The words “and a branch in London” omitted by Act 24 of 1955, s.3.
1
India 1[* * *] or, with the previous sanction of the 2[Central Government],
elsewhere.
3
[7. Management.
(1) The Central Government may from time to time give such directions to the
Bank as it may, after consultation with the Governor of the Bank, consider
necessary in the public interest.
(2) Subject to any such directions, the general superintendence and direction of
the affairs and business of the Bank shall be entrusted to a Central Board of
Directors which may exercise all powers and do all acts and things which may be
exercised or done by the Bank.
4
[(3) Save as otherwise provided in regulations made by the Central Board, the
Governor and in his absence the Deputy Governor nominated by him in this
behalf, shall also have powers of general superintendence and direction of the
affairs and the business of the Bank, and may exercise all powers and do all acts
and things which may be exercised or done by the Bank.]
8. Composition of the Central Board, and term of office of Directors.
5
[(1) The Central Board shall consist of the following Directors, namely:-
(a) a Governor and 6[not more than four] Deputy Governors to be appointed
by the Central Government;
(b) four Directors to be nominated by the Central Government, one from each
of the four Local Boards as constituted by section 9;
(c) 7[ten] Directors to be nominated by the Central Government; and
(d) 8[two Government officials] to be nominated by the Central Government;]
1
The words “or Burma” ins. by the M. O. 1937, omitted by Act 11 of 1947, s.5 (w.e.f. 1-4-1947).
2
3
Subs. by Act 62 of 1948, s.7 and Sch., for the original section (w.e.f. 1-1-1949).
4
Subs. by Act 32 of 1951, s.5, for the former sub-section (w.e.f. 1-1-1949).
5
Subs. by Act 62 of 1948, s.7 and Sch., for the former Sub-section (w.e.f. 1-1-1949).
6
Subs. by Act 18 of 1964, s.38 and Sch.II, for “three” (w.e.f. 1-7-1964).
7
Subs. by Act 18 of 1964, s.38 and Sch.II, for “six” (w.e.f. 1-7-1964).
8
Subs. by Act 12 of 2012, s.35 and Sch., for “one Government official” (w.e.f. 1-2-2012).
(2) The Governor and Deputy Governors shall devote their whole time to the
affairs of the Bank, and shall receive such salaries and allowances as may be
determined by the Central Board, with the approval of the 1[Central Government]:
2
[Provided that the Central Board may, if in its opinion it is necessary in the
public interest so to do, permit the Governor or a Deputy Governor to
undertake, at the request of the Central Government or any State Government,
such part-time honorary work, whether related to the purposes of this Act or
not, as is not likely to interfere with his duties as Governor or Deputy
Governor, as the case may be:]
3
[Provided further that the Central Government may, in consultation with the
Bank, appoint a Deputy Governor as the Chairman of the National Bank, on
such terms and conditions as that Government may specify.]
(3) A Deputy Governor and the Director nominated under clause (d) of sub-
section (1) may attend any meeting of the Central Board and take part in its
deliberations but shall not be entitled to vote:
4
[Provided that when the Governor is, for any reason, unable to attend any
such meeting, a Deputy Governor authorised by him in this behalf in writing
may vote for him at that meeting.]
(4) The Governor and a Deputy Governor shall hold office for such term not
exceeding five years as the 5[Central Government] may fix when appointing them
and shall be eligible for re-appointment.
6
[A Director nominated under clause (c) of sub-section (1) shall 7[* * *] hold
office for a period of four years 8[and] 9[shall be eligible for reappointment:
Provided that any such Director shall not be appointed for more than two
terms, that is, for a maximum period of eight years either continuously or
intermittently.]
A Director nominated under clause (d) of sub-section (1) shall hold office during
the pleasure of the 1[Central Government].
1
Subs. by the M.O. 1937, for “G. G. in C.”.
2
Ins. by Act 35 of 1962, s.2.
3
Ins. by Act. 61 of 1981, s.61 and Sch.II (w.e.f. 12-7-1982).
4
Subs. by Act 54 of 1953, s.2, for the proviso.
5
Subs. by M. O. 1937 for “G. G. in C.”.
6
Subs. by Act 62 of 1948, s.7 and Sch., for the second paragraph (w.e.f. 1-1-1949).
7
The words, brackets and figure “subject to the provisions of sub-section (6)” omitted by Act 18 of 1964,
s.38 and Sch.II (w.e.f. 1-7-1964).
8
Ins. by Act 51 of 1974, s.4.
9
Subs. by Act 4 of 2013, s. 17 and Sch., for the words “thereafter until his successor shall have been
nominated” (w.e.f. 18-1-2013).
(5) No act or proceeding of the Board shall be questioned on the ground merely of
the existence of any vacancy in, or any defect in the constitution of, the Board.
2 3
[ * * * * *]
(7) A retiring Director shall be eligible for re-nomination.]
4
[9. Local Boards, their constitution and functions.
(1) A Local Board shall be constituted for each of the four areas specified in the
First Schedule and shall consist of five members to be appointed by the Central
Government to represent, as far as possible, territorial and economic interests and
the interests of co-operative and indigenous banks.
(2) The members of the Local Board shall elect from amongst themselves one
person to be the chairman of the Board.
5
[(3) Every member of a Local Board shall hold office for a term of four years
and] 6[shall be eligible for reappointment:
Provided that any such Director shall not be appointed for more than two
terms, that is, for a maximum period of eight years either continuously or
intermittently.
(4) A Local Board shall advise the Central Board on such matters as may be
generally or specifically referred to it and shall perform such duties as the Central
Board may delegate to it.]
10. Disqualifications of Directors and members of Local Boards.
(1) No person may be a Director or a member of a Local Board who -
(a) is a salaried Government official 7[* * *] 8[* * *], or
1
2
Subs. by M. O. 1937 for “G. G. in C.”.
Ins. by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).
3
Sub-section (6) omitted by Act 18 of 1964, s.38 and Sch.II (w.e.f. 1-7-1964).
4
Subs. by Act 62 of 1948, s.7 and Sch., for s.9 (w.e.f. 1-1-1949).
5
Subs. by Act 51 of 1974, s.5, for sub-section (3).
6
Subs. by Act 4 of 2013, s. 17 and Sch., for the words “thereafter until his successor shall have been
appointed and shall be eligible for re-appointment” (w.e.f. 18-1-2013).
7
The words “or a salaried official of a State in India” omitted by the A. O. 1950.
8
(b) is, or at any time has been, adjudicated an insolvent, or has suspended
payment or has compounded with his creditors, or
(c) is found lunatic or becomes of unsound mind, or
(d) is an officer or employee of any bank, or

1
[(e) is a Director of a banking company within the meaning of clause (c)
of section 5 of the 2[Banking Regulation Act, 1949], or of a co-operative
bank.]
(2) No two persons who are partners of the same mercantile firm, or are Directors
of the same private company, or one of whom is the general agent of or holds a
power of procuration from the other, or from a mercantile firm of which the other
is a partner, may be Directors or members of the same Local Board at the same
time.
(3) Nothing in clause (a), clause (d) or clause (e) of sub-section (1) shall apply to
the Governor, or to a Deputy Governor, or to the Director nominated under clause
(d) of sub-section (1) of section 8.
11. Removal from and vacation of office.
(1) The 3[Central Government] may remove from office the Governor, or a
Deputy Governor or 4[any other Director or any member of a Local Board].
5
[*****]
6
[(2) A Director nominated under clause (b) or clause (c) of sub-section (1) of
section 8 shall cease to hold office if without leave from the Central Board he
absents himself from three consecutive meetings of the Board convened under
sub-section (1) of section 13.]
(3) The 7[Central Government] shall remove from office any Director and the
Central Board shall remove from office any member of a Local Board, if such
Director or member becomes subject to any of the disqualifications specified in
sub-section (1) or sub-section (2) of section 10.
1
Subs. by Act 23 of 1965, s.3 for the original cl. (e) (w.e.f. 1-3-1966).
2
Subs. by Act 51 of 1974, s.3 for “Banking Companies Act, 1949”.
3
4
Subs. by Act 32 of 1951, s.6, for “any other Director” (w.e.f. 1-11-1951).
5
The proviso omitted by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).
6
Subs. by s.7 and Sch., Act 62 of 1948, for the former sub-section (2) (w.e.f. 1-1-1949).
7
(4) A Director or member of a Local Board removed or ceasing to hold office,
under the foregoing sub-sections shall not be eligible for re-appointment either as
Director or as member of a Local Board until the expiry of the term for which his
appointment was made.
(5) The 1[* * *] nomination 2[* * *] as Director or member of a Local Board of

any person who is a member of 3[Parliament or the Legislature 4[of any State]]
shall be void, unless, within two months of the date of his 5[* * *] nomination 6[*
* *], he ceases to be such member, and, if any Director or member of a Local
Board is elected or nominated as a member of 7[Parliament or any such
Legislature], he shall cease to be a Director or member of the Local Board as from
the date of such election or nomination, as the case may be.
(6) A Director may resign his office to the 8[Central Government], and a member
of a Local Board may resign his office to the Central Board, and on the
acceptance of the resignation the office shall become vacant.
12. Casual Vacancies and absences
(1) If the Governor or a Deputy Governor by infirmity or otherwise is rendered

incapable of executing his duties or is absent on leave or otherwise in
circumstances not involving the vacation of his appointment, the 9[Central
Government] may, after consideration of the recommendations made by the
Central Board in this behalf, appoint another person to officiate for him, and such
person may, notwithstanding anything contained in clause (d) of sub-section (1)
of section 10, be an officer of the Bank.
10
[* * * * *]
(3) Where any casual vacancy in the office of any member of a Local Board
occurs 11[* * *], the Central Board may nominate thereto any 12[* * *] person
recommended by the 13[other] members of the Local Board.
1
The word “appointment” omitted by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).
2
The words “or election” omitted by s.7 and Sch., Act 62 of 1948 (w.e.f. 1-1-1949).
3
Subs. by the A. O. 1950, for certain words.
4
Subs. by Act 32 of 1951, s.6, for “of a Part A State or a Part C State” (w.e.f. 1-11-1951).
5
The word “appointment” omitted by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).
6
The words “or election” omitted by s.7 and Sch., Act 62 of 1948 (w.e.f. 1-1-1949).
7
Subs. by the A.O. 1950, for “any such Legislature or Council”.
8
9
10
Sub-section (2) omitted by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).
11
The words “otherwise than by the occurrence of a vacancy in the office of a Director, elected by the
Local Board” omitted by s.7 and Sch., Act 62 of 1948, (w.e.f. 1-1-1949).
12
The word “qualified” omitted by s.7 and Sch., Act 62 of 1948 (w.e.f. 1-1-1949).
13
Subs. by s.7 and Sch., Act 62 of 1948, for “elected” (w.e.f. 1-1-1949).
(4) Where any casual vacancy occurs in the office of a Director other than the
vacancies provided for in sub-section (1), the vacancy shall be filled 1[by the
Central Government].
(5) A person nominated 2[* * *] under this section to fill a casual vacancy shall
3
[* * *] hold office for the unexpired portion of the term of his predecessor.
13. Meetings of the Central Board.
(1) Meetings of the Central Board shall be convened by the Governor at least six
times in each year and at least once in each quarter.
(2) Any 4[four Directors] may require the Governor to convene a meeting of the
Central Board at any time and the Governor shall forthwith convene a meeting
accordingly.
(3) The Governor, or 5[if for any reason, he is unable to attend,] the Deputy
Governor authorized by the Governor under the proviso to subsection (3) of
section 8 to vote for him, shall preside at meetings of the Central Board, and, in
the event of an equality of votes, shall have a second or casting vote.
14. to 16. [General meetings. First constitution of the Central Board. First
constitution of Local Board.]
[Rep. by the Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).]
17. Business which the Bank may transact.
The Bank shall be authorized to carry on and transact the several kinds of
business hereinafter specified, namely: -
1
Subs. by s.7 and Sch., Act 62 of 1948, for certain words (w.e.f. 1-1-1949).
2
The words “or elected” omitted by s.7 and Sch., Act 62 of 1948, (w.e.f. 1-1-1949).
3
The words “subject to the proviso contained in sub-section (4)” omitted by s.7 and Sch., Act 62 of 1948
w.e.f. 1-1-1949).
4
Subs. by Act 18 of 1964, s.38 and Sch.II, for “three Directors” (w.e.f. 1-7-1964).
5
Subs. by Act 24 of 1955, s.5, for “in his absence”.
(1) the accepting of money on deposit without interest from and the collection
of money for, 1[* * *] the 2[Central Government], 3[4[* * *] the 5[State]
Governments 6[* * *] 7[* * *] local authorities, banks and any other persons;
8
[(1-A) the accepting of money as deposits, repayable with interest, from banks or
any other person under the Standing Deposit Facility Scheme, as approved by the
Central Board, from time to time, for the purposes of liquidity management;]
(2) (a) the purchase, sale and rediscount of bills of exchange and promissory
notes, 9[drawn on 10[and payable in India]] and arising out of bona fide
commercial or trade transactions bearing two or more good signatures, one of
which shall be that of a scheduled bank 11[or a State co-operative bank] 12[or any
financial institution, which is predominantly engaged in the acceptance or
discounting of bills of exchange and promissory notes and which is approved by
the Bank in this behalf] 13[* * *] and 14[maturing,–
(i) in the case of bills of exchange and promissory notes arising out of any
such transaction relating to the export of goods from India, within one
hundred and eighty days, and
(ii) in any other case, within ninety days, from the date of such purchase or
rediscount exclusive of days of grace;]
(b) the purchase, sale and rediscount of bills of exchange and promissory notes,
15
[drawn 16[and payable in India]] and bearing two or more good signatures, one
of which shall be that of a scheduled bank 17[or a 18[State] co-operative bank 19[or
any financial institution, which is predominantly engaged in the acceptance or
1
The words “the Secretary of State” omitted by the A. O. 1948.
2
Subs. by the M. O. 1937, for “G. G. in C”.
3
Subs. by the M. O. 1937, for “L. G.’s”.
4
The words “the Federal Railway Authority” omitted by the A. O. 1948.
5
Subs. by the A. O. 1950, for “provincial”.
6
The words “the Government of Burma, the Burma Railway Board” omitted by Act 11 of 1947, s.11
(w.e.f. 1-4-1947).
7
The words and letter “Part B States” omitted by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
8
Inserted by Act 13 of 2018, S.135.
9
Subs. by the M. O. 1937, for “drawn on and payable in India”.
10
Subs. by Act 11 of 1947, s.11, for “India or Burma and payable in India or Burma” (w.e.f. 1-4-1947).
11
Ins. by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
12
Ins. by Act 51 of 1974. s.6.
13
The words “or a Burma scheduled bank” ins. by the M. O. 1937, omitted by Act 11 of 1947, s.11 (w.e.f.
1-4-1947).
14
Subs. by Act 35 of 1962, s.3, for certain words.
15
Subs. by the M. O. 1937, for “drawn on and payable in India”.
16
Subs. by Act 11 of 1947, s.11, for “India or Burma and payable in India or Burma” (w.e.f. 1-4-1947).
17
Subs. by Act 11 of 1947, S.11 for certain words (w.e.f. 1.4.1947).
18
Subs. by the A. O. 1950, for “Provincial”.
19
Ins. by Act 51 of 1974, s.6.
discounting of bills of exchange and promissory notes and which is approved by
the Bank in this behalf] and drawn or issued for the purpose of 1[financing
agricultural operations] or the marketing of crops, and maturing within 2[fifteen
months] from the date of such purchase or rediscount, exclusive of days of grace;
3
[* * * * *]
4
[(bb) the purchase, sale and rediscount of bills of exchange and promissory notes
drawn and payable in India and bearing two or more good signatures, one of
which shall be that of a State Co-operative bank] or a State financial corporation
5
[or any financial institution, which is predominantly engaged in the acceptance
or discounting of bills of exchange and promissory notes and which is approved
by the Bank in this behalf, and drawn or issued for the purpose of financing the
production or marketing activities of cottage and small scale industries approved
by the Bank and maturing within twelve months from the date of such purchase or
rediscount, exclusive of days of grace, provided that the payment of the principal
and interest of such bills of exchange or promissory notes is fully guaranteed by
the State Government;]
(c) the purchase, sale and rediscount of bills of exchange and promissory notes
6
[drawn 7[and payable in India]] and bearing the signature of a scheduled bank,
8
[* * *] and issued or drawn for the purpose of holding or trading in securities of
9
[the Central Government 10[or a 11[State] Government]] 12[* * *] and maturing
within ninety days from the date of such purchase or rediscount, exclusive of days
of grace;
(3) (a) the purchase from and sale to scheduled banks 13[* * *] of 14[foreign
exchange] 15[* * *].
1
Subs. by Act 51 of 1974, s.6 for “financing seasonal agricultural operations”.
2
Subs. by the Act 32 of 1951, s.7, for “nine months” (w.e.f. 1-11-1951).
3
Explanation added by Act 54 of 1953, s.3 omitted by Act 23 of 1965, s.4 (w.e.f. 1-3-1966).
4
Ins. by Act 54 of 1953, s.3.
5
Ins. by Act 51 of 1974, s.6.
6
Subs. by the M. O. 1937, for “drawn and payable in India”.
7
Subs. by the Act 11 of 1947, s.11, for certain words (w.e.f. 1-4-1947).
8
The words “or a Burma scheduled bank” omitted by s.11 Act 11 of 1947. (w.e.f. 1-4-1947).
9
Subs. by the M. O. 1937, for “the Government of India or a L. G.”
10
Subs. by the Act 11 of 1947, s.11, for certain words (w.e.f. 1-4-1947).
11
Subs. by the A. O. 1950, for “Provinicial”.
12
The words “or such securities of Part B States as may be specified in this behalf by the Central
Government on the recommendation of Central Board” omitted by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
13
The words “and Burma scheduled banks”, ins. by the M. O. 1937, omitted by Act 11 of 1947, s.11 (w.e.f.
1-4-1947).
14
Subs. by Act 62 of 1948, s.7 and Sch., for “sterling” (w.e.f. 1-1-1949).
15
Certain words omitted by Act 24 of 1978, s.4 (w.e.f. 21-7-1978).
1
[(b) the purchase, sale and rediscount of bills of exchange (including treasury
bills) drawn in or on any place in any country outside India which is a member of
the International Monetary Fund and maturing, –
(i) in the case of bills of exchange arising out of any bona fide transaction
relating to the export of goods from India, within one hundred and eighty
days, and
(ii) in any other case, within ninety days,
from the date of such purchase or rediscount:
Provided that no such purchase, sale or rediscount shall be made in India except
with a scheduled bank or a State co-operative bank;]
2
[* * * * *]
3
[(3A) the making to any scheduled bank or State co-operative bank, of loans and
advances, against promissory notes of such bank, repayable on demand or on the
expiry of fixed periods not exceeding one hundred and eighty days;
Provided that the borrowing bank furnishes a declaration in writing, to the

effect that –
(i) it holds bills of exchange arising out of any transaction relating to the
export of goods from India, of a value not less than the amount of such loans
or advances, –
(a) drawn in India and on any place in any country outside India which is a
member of the International Monetary Fund or in any other country notified in
this behalf by the Bank in the Gazette of India, and
4
[(b) maturing not later than one hundred and eighty days from the date of the
loan or advance, and it will, so long as any part of such loans and advances
remains unpaid, continue to hold such bills of exchange of a value not less
than the amount of such loans or advances outstanding for the time being; or]
5
[(ii) it has granted a pre-shipment loan or advance to an exporter or any other
person in India in order to enable him to export goods from India, the amount
of the loan or advance drawn and outstanding at any time being not less than
1
Subs. by Act 35 of 1962 s.3 for Sub-clause (b).
2
Sub-clause (c) omitted by Act 62 of 1948 s.7 and Sch. (w.e.f. 1-1-1949).
3
Ins. by Act 35 of 1962 s.3.
4
Subs. by Act 58 of 1968, s.24, for sub-clause (b) (w.e.f. 1-2-1969).
5
Subs. by s.24, of Act 58 of 1968 for cl. (ii) (w.e.f. 1-2-1969).
the outstanding amount of the loan or advance obtained by the borrowing
bank from the Bank;]]
1
[(3B) the making to any scheduled bank or State co-operative bank of loans and
advances repayable on demand or on the expiry of fixed periods not exceeding
one hundred and eighty days against promissory notes of such bank;
Provided that the borrowing bank furnishes a declaration in writing to the effect
that it has made loans and advances for bona fide commercial or trade
transactions or for financing agricultural operations or the marketing of crops or
for other agricultural purposes as set out in the declaration and the said
declaration includes such other particulars as may be required by the Bank:]
(4) the making to 2[* * *] local authorities, scheduled banks 3[4[* * *] 5[State] co-
operative banks 6[and State Financial Corporations 7[* * *]] of loans and
advances, repayable on demand or on the expiry of fixed periods not exceeding
ninety days, against the security of –
(a) stocks, funds and securities (other than immovable property) in which a
trustee is authorized to invest trust money by any Act of Parliament 8[of the
United Kingdom] or by any law for the time being in force in 9[India]10[* *
*];
(b) gold or silver or documents of title to the same;
(c) such bills of exchange and promissory notes as are eligible for purchase or
rediscount by the Bank 11[or as are fully guaranteed as to the repayment of the
principal and payment of interest by a State Government];
(d) promissory notes of any scheduled bank 12[ 13[or 14[State]] Co-operative
bank], supported by documents of title to goods 15[such documents having
1
Ins. by Act 51 of 1974, s.6.
2
The words and letter “Part B States” omitted by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
3
Subs. by the M. O. 1937, for “and Provincial co-operative banks”.
4
The words “Burma scheduled banks” omitted by Act 11 of 1947, s.11 (w.e.f. 1-4-1947).
5
6
Subs. by Act 19 of 1957, s.2, for “State Financial Corporations established under the State Financial
Corporations Act, 1951), (63 of 1951), and the principal currency authority of Ceylon”.
7
8
Ins. by the A. O. 1950.
9
Subs. by Act 32 of 1951, s.2, for “the States” (w.e.f. 1-11-1951).
10
11
Ins. by Act 24 of 1955, s.6.
12
Subs. by the M. O. 1937, for “or a Provincial co-operative bank”.
13
Subs. by Act 11 of 1947, s.11, for certain words (w.e.f. 1-4-1947).
14
Subs. by A. O. 1950, for “Provisional”.
15
Subs. by Act 32 of 1951, s.7 for “which have been transferred” (w.e.f. 1-11-1951).
been transferred], assigned, or pledged to any such bank as security for 1[a
loan or advance made] for bona fide commercial or trade transactions, or for
the purpose of 2[financing agricultural operations] or the marketing of crops:
3
[Provided that loans and advances made against the security of bills of
exchange and promissory notes arising out of any transaction relating to
the export of goods from India shall be repayable on demand or on the
expiry of fixed periods not exceeding one hundred and eighty days];
4
[(4A) the making to any State Financial Corporation 5[* * *], of loans and
advances repayable on the expiry of fixed periods not exceeding eighteen months
from the date of such loan or advance, against securities of the Central
Government or of any State Government, of any maturity, or against bonds and
debentures issued by that Corporation and guaranteed by the State Government
concerned and maturing within a period not exceeding eighteen months from the
date of such loan or advance:
6
[Provided that the previous approval of the State Government shall be
obtained for the borrowing by the State Financial Corporation and the amount
of loans and advances granted to that Corporation under this clause shall not,
at any time, exceed in the aggregate 7[twice the paid up share capital] thereof];
8
[(4AA) the making of annual contributions to the National Rural Credit (Long
Term Operations) Fund and the National Rural Credit] (Stabilisation) Fund
established under sections 42 and 43, respectively, of the National Bank for
Agriculture and Rural Development Act, 1981;]
9
[(4B) the making to the Industrial Finance Corporation of India 10[* * *] of loans
and advances, –
(a) repayable on demand or on the expiry of fixed periods not exceeding

ninety days from the date of such loan or advance, against securities of the
Central Government or of any State Government; or
(b) repayable on the expiry of fixed periods not exceeding eighteen months
1
Subs. by Act 24 of 1955, s.6, for “a cash credit or overdraft granted”.
2
Subs. by Act 51 of 1974, s.6, for “financing seasonal agricultural operations”.
3
Ins. by Act 35 of 1962, s.3.
4
Ins. by Act 14 of 1960. s.2.
5
6
Subs. by Act 51 of 1974, s.6, for the former proviso.
7
Subs. by Act No.81 of 1985, s.2 for certain words (w.e.f. 1-5-1986).
8
Subs. by Act 61 of 1981, s.61 and Sch.II, for cl. (4AA) (w.e.f. 12-7-1982).
9
Ins. by Act 54 of 1953, s.3.
10
Government of any maturity or against bonds and debentures issued by the
said Corporation and guaranteed by the Central Government and maturing
within a period not exceeding eighteen months from the date of such loan or
advance:
1
[* * * * *]
2
[(4BB) the making to any financial institution notified by the Central
Government in this behalf, of loans and advances, –

ninety days from the date of such loan or advance, against the securities of the
Central Government or of any State Government, or
Government or of any State Government, of any maturity, or against bonds
and debentures issued by that financial institution and guaranteed by the
Central Government or any State Government, and maturing within a period
not exceeding eighteen months from the date of such loan or advance:
Provided that the amount of loans and advances granted to a financial

institution under sub-clause (b) shall not, at any time, exceed in the
aggregate sixty per cent, of the paid-up share capital thereof];
3
[(4BBB) the making to the Unit Trust of loans and advances -
(i) repayable on demand or on the expiry of a fixed period not exceeding

ninety days from the date of such loan or advance against the security of
stocks, funds and securities (other than immovable property) in which a
trustee is authorised to invest trust money by any law for the time being in
force in India; 4[* * *]
(ii) repayable on demand or within a period of eighteen months from the date
of such loan or advance against the security of the bonds of the Unit Trust
issued with the approval of and guaranteed by the Central Government];
5
[(iii) for the purpose of any scheme other than the first unit scheme under the
Unit Trust of India Act, 1963 on such terms and conditions and against the
1
Proviso omitted by Act No.66 of 1988, s.5 (w.e.f. 30-12-88).
2
Subs. by Act 14 of 1960, s.2 for cl.(4BB) which was ins. by Act 19 of 1957, S.2.
3
Ins. by Act 52 of 1963, s.44 and Sch.II (w.e.f. 1-2-1964).
4
The word “or” omitted by Act 17 of 1966, s.11 (w.e.f. 10-6-1966).
5
Ins. by s.11, Act 17 of 1966. (w.e.f. 10-6-1966).
security of such other property of the Unit Trust as may be specified in this
behalf by the Bank]];
1
[(4C) the making to a Warehousing Corporation established under the
Agricultural Produce (Development and Warehousing) Corporations Act, 1956, of
loans and advances, –

ninety days, from the date of such loan or advance, against securities of the
Central Government or of any State Government, or
Government or of any State Government, of any maturity, or against bonds
and debentures issued by the Corporation to which the loan or advance is
made, and guaranteed by the Central or a State Government, and maturing
within a period not exceeding eighteen months from the date of such loan or
advance:
Provided that the amount of loans and advances granted under clause (b)
shall not at any time exceed, in the aggregate, three crores of rupees in the
case of the Central Warehousing Corporation and fifty lakhs of rupees in
the case of a State Warehousing Corporation];
2
[(4D) the making to the Deposit Insurance Corporation of loans and advances;
and generally assisting the Corporation in such manner and on such terms as may
be determined by the Central Board];
3
[(4DD) the making to the National Housing Bank of loans and advances and
generally assisting the National Housing Bank in such manner and on such terms
as may be determined by the Central Board];
4
[(4E) the making to the National Bank of loans and advances repayable on
demand or on the expiry of fixed period not exceeding eighteen months from the
date of making of the loan or advance, either-
(i) against the security of stocks, funds and securities (other than immovable
property) in which a trustee is authorised to invest trust money by any law for
the time being in force in India; or
(ii) on such other terms and conditions as the Bank may specify];
1
Ins. by Act 28 of 1956, s.55 (w.e.f. 1-8-1956).
2
3
Ins. by Act 53 of 1987, s.56 and Second Schedule (w.e.f. 9-7-1988).
4
Subs. by Act 61 of 1981, s.61 and Sch.II, for cl. (4E) (w.e.f. 12-7-1982).
1
[(4F) contributing to the initial capital of the Unit Trust];
2
[(4G) the making of loans and advances to, and the purchasing of bonds and
debentures of, 3[****] 4[the Exim Bank] 5[or the Reconstruction Bank] 6[or the
Small Industries Bank] out of the National Industrial Credit (Long Term
Operations) Fund established under section 46C;
7
[(4GG) the making of loans and advances to, and the purchasing of bonds and
debentures of, the National Housing Bank out of the National Housing Credit
(Long Term Operations) Fund established under section 46D];
(4H) the making to 8[*****] 9[the Small Industries Bank] of loans and advances -

ninety days, from the date of such loan or advance against the security of
force in India; or
(b) against the security of bills of exchange or promissory notes, arising out of
bona fide commercial or trade transactions bearing two or more good
signatures and maturing within five years from the date of such loan or
advance];
10
[(4-I) the making to scheduled banks, 11[****] 12[the Exim Bank] 13[or the
Reconstruction Bank or the Small Industries Bank], the Industrial Finance
Corporation and any other financial institution as may, on the recommendation of
the Bank, be approved in this behalf by the Central Government of loans and
advances repayable on demand or otherwise and against such security and on such
other terms and conditions as may be approved in this behalf by the Central Board
for the purpose of enabling such banks, or financial institution, as the case may
be, to purchase foreign exchange from the Bank for the purpose of financing the
1
Ins. by Act 52 of 1963. s.44 and Sch.II (w.e.f. 1-2-1664).
2
3
The words “the Development Bank or” omitted by the Industrial Development Bank (Transfer of
Undertaking and Repeal) Act, 2003 (Act No.53 of 2003), Sec. 2(a).
4
5
Ins. by Act 62 of 1984, s.71 and Sch.III (w.e.f. 20-3-1985).
6
Ins. by Act 39 of 1989.
7
Ins. by Act 53 of 1987, s.56 and the Second Schedule (w.e.f. 9-7-1988).
8
The words “the Development Bank or” omitted by the Industrial Development Bank (Transfer of
Undertaking and Repeal) Act, 2003 (Act No.53 of 2003), Sec. 2(a).
9
10
Ins. by Act 24 of 1978, s.4 (w.e.f. 21-7-1978).
11
The words “the Development Bank” omitted by the Industrial Development Bank (Transfer of
Undertaking and Repeal) Act, 2003 (Act No.53 of 2003), Sec. 2(b).
12
13
import of capital goods or for such other purposes as may be approved by the
Central Government];
1
[(4J) the making to the Exim Bank of loans and advances –
(a) repayable on demand or on the expiry of a fixed period not exceeding

force in India; or
advance;]
2
[(4K) the making to the Reconstruction Bank of loans and advances –
(a) repayable on demand or on the expiry of a fixed period not exceeding

force in India; or
advance];
(5) the making to the 3[Central Government] 4[5[* * *] 6[and 7[State

Governments]] of advances repayable in each case not later than three months
from the date of the making of the advance;
8
[(6) the issue of demand drafts, telegraphic transfers and other kinds of
remittances made payable at its own offices or agencies, the purchase of
telegraphic transfers, and the making, issue and circulation of bank post bills];
1
Ins. by Act. 28 of 1981, s.40 and Sch.II (w.e.f. 1-1-1982).
2
Ins. by Act. 62 of 1984, s.71 and Sch.III (w.e.f. 20-3-1985).
3
Subs. by the M.O. 1937, for “G. G. in C”.
4
Subs., M.O. 1937, for certain words.
5
The words “the Federal Railway Authority” omitted by the A. O. 1948.
6
7
8
Subs. by Act 32 of 1951, s.7, for cl. (6) (w.e.f. 1-11-1951).
1
[(6A) dealing in derivatives, and, with the approval of the Central Board, in any
other financial instrument.
Explanation. -- For the purposes of this clause, "derivative" means an

instrument, to be settled at a future date, whose value is derived from change
in one or a combination of more than one of the following underlyings,
namely:--
(a) interest rate,
(b) price of securities of the Central Government or a State Government or of

such securities of a local authority as may be specified in this behalf by the
Central Government,
(c) price of foreign securities,
(d) foreign exchange rate,
(e) index of rates or prices,
(f) credit rating or credit index,
(g) price of gold or silver coins, or gold or silver bullion, or
(h) any other variable of similar nature];
2
[* * * * * * *]
(8) the Purchase and sale of securities 3[of the Central 4[Government or a 5[State]
Government]] of any maturity or of such securities of a local authority 6[* * *] as
may be specified in this behalf by the 7[Central Government] on the
recommendation of the Central Board:
Provided that securities fully guaranteed as to principal and interest by 8[any

such Government 9[or authority]] shall be deemed for the purposes of this
clause to be securities of such government 10[or authority];
1
Ins. by sec. 2 of the RBI (Amendment) Act, 2006 (Act No. 26 of 2006) (w.e.f. 9.1.2007).
2
Cl. (7) rep. by Act 2 of 1948, s.2 and Sch.
3
Subs. by the M. O. 1937, for “of the G. of I or of a L. G.”.
4
Subs. by Act, 11 of 1947 s.11 for certain words (w.e.f. 1-4-1947).
5
6
The words and letter “or such Part B States” omitted by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
7
Subs. by the M. O. 1937 for “G. G. in C.”.
8
Subs. by the M. O. 1937 for certain words.
9
Subs. by s.7, M. O. 1937, for “authority or State” (w.e.f. 1-11-1951).
10
Subs. by s.7, M. O. 1937, for “authority or State” (w.e.f. 1-11-1951).
1
[* * * * * * *]
2
[(8A) the purchase and sale of shares in, or the capital of 3[the 4[National Bank]
5
[the Deposit Insurance Corporation], 6[*****], the State Bank 7[or any other
bank 8[or financial institution] notified by the Central Government in this
behalf]];
9
[(8AA) the promoting, establishing, supporting or aiding in the promotion,
establishment and support of any financial institution, whether as its subsidiary or
otherwise;]
10
[(8B) the keeping of deposits with the State Bank for such specific purposes as
may be approved by the Central Government in this behalf];
(9) the custody of monies, securities and other articles of value, and the collection
of the proceeds, whether principal, interest or dividends, of any such securities;
(10) the sale and realisation of all property, whether movable or immovable,
which may in any way come into the possession of the Bank in satisfaction, or
part satisfaction, of any of its claims;
(11) the acting as agent for 11[* * *] the 12[Central Government] 13[or any
14
[State] Government 15[* * *] or any local authority 16[* * *] 17[or the Industrial
Finance Corporation of India 18[* * *] 19[or any other body corporate which is
established or constituted by or under any other law] 20[or the Government of any
1
Second proviso omitted by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
2
Ins. by Act 23 of 1955, s.52 and Sch.III (w.e.f. 1-7-1955).
3
Ins. By Act 10 of 1963, s. 47 and Sch. II (w.e.f. 1-5-1963).
4
Sub. By Act 61 of 1981, s. 61 and Sch. II, for “Agricultural Refinance and Development Corporation”
(w.e.f. 12-7-1982).
5
Ins. by Act 47 of 1961, s.51 and Sch. II (w.e.f. 1-1-1962).
6
7
Subs. by Act 79 of 1956, s.43 and Sch.II for “or any of its subsidiary banks” (w.e.f. 22-10-1956).
8
Ins. by Act 18 of 1957, s.2.
9
Ins. by Act 53 of 1987 (w.e.f. 9-7-1988).
10
Ins. by Act 38 of 1959, s.64 and Sch. III (w.e.f. 10-9-1959).
11
The words “the Secretary of State” omitted by the A. O. 1948.
12
Subs. by the M. O. 1937, for “G. G. in C”.
13
Subs. M. O. 1937, for certain words.
14
15
The words “or the Government of Burma; omitted by Act 11 of 1947, s.11 (w.e.f. 1-4-1947).
16
The words and letter “or any Part B State” omitted by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
17
Ins. by Act 44 of 1959, s.2.
18
19
Ins. by Act 51 of 1974, s.6.
20
Ins. by Act 32 of 1951, s.7 (w.e.f. 1-11-1951).
such country outside India or 1[any such person or authority] as may be approved
in this behalf by the Central Government] in the transaction of any of the
following kinds of business, namely; –
(a) the purchase and sale of gold or silver 2[or foreign exchange];
(b) the purchase, sale, transfer and custody of bills of exchange, securities or
shares in any company;
(c) the collection of the proceeds, whether principal, interest or dividends, of

any securities or shares:
(d) the remittance of such proceeds, at the risk of the principal, by bills of
exchange payable either in India or elsewhere;
(e) the management of public debt;

3
[(f)4[* * *] the issue and management of 5[* * *] bonds and debentures];
6
[(11A) the acting as agent for the Central Government, –
7
[(a) in guaranteeing the due performance by any small scale industrial
concern, approved by the Central Government, of its obligations to any bank
or other financial institution in respect of loans and advances made, or other
credit facilities provided, to it by such bank or other financial institution and
the making as such agent of payments in connection with such guarantee, and
(b) in administering any scheme for subsidising the rate of interest or other
charges in relation to any loans or advances made, or other credit facilities
provided, by banks or other financial institutions for the purpose of financing
or facilitating any export from India and the making as such agent of
payments on behalf of the Central Government;]
8
[(12) the purchase and sale of gold or silver coins and gold and silver bullion and
foreign exchange and the opening of a gold account with the principal currency
authority of any foreign country or the Bank for International Settlements or any
international or regional bank or financial institution formed by such principal
currency authority or authorities or by the Government of any foreign country;]
1
Subs. by Act 51 of 1974, s.6 for “any such person”.
2
Ins. by Act 23 of 1947, s.3.
3
Ins. by Act 44 of 1949, s.2.
4
The words “in respect of the aforesaid Corporation” omitted by Act 51 of 1974, s.6.
5
The word “its” omitted by s.6, Act 51 of 1974.
6
Subs. by Act 58 of 1968, s.24, for cl. (11A) (w.e.f. 1-2-1969). Original cl. (11A) was ins. by Act 14 of
1960, s.2.
7
Sub-clause (a) of clause (11A) shall stand omitted by Act 21 of 1978, s.9.
8
Subs. by Act 24 of 1978, s.4, for cl, (12) (w.e.f. 21-7-1978).
1
[(12A) the purchase and sale of securities issued by the Government of any
country outside India or by any institution or body corporate established outside
India and expressed to be payable in a foreign currency or any international or
composite currency unit, being in the case of purchase by the Bank securities
maturing within a period of ten years from the date of purchase:
Provided that in the case of securities of an institution or body corporate, the

repayment of principal and payment of interest in respect of such securities
shall be guaranteed by the Government of the country concerned];
2
[(12AA) lending or borrowing of securities of the Central Government or a State
Government or of such securities of a local authority as may be specified in this
behalf by the Central Government or foreign securities;
(12AB) dealing in repo or reverse repo:
Provided that lending or borrowing of funds by way of repo or reverse repo

shall not be subject to any limitation contained in this section.
Explanation. -- For the purposes of this clause,--
(a) "repo" means an instrument for borrowing funds by selling securities of

the Central Government or a State Government or of such securities of a local
authority as may be specified in this behalf by the Central Government or
foreign securities, with an agreement to repurchase the said securities on a
mutually agreed future date at an agreed price which includes interest for the
funds borrowed;
(b) "reverse repo" means an instrument for lending funds by purchasing

securities of the Central Government or a State Government or of such
securities of a local authority as may be specified in this behalf by the Central
Government or foreign securities, with an agreement to resell the said
securities on a mutually agreed future date at an agreed price which includes
interest for the funds lent];
3
[(12B) the making of loans and advances in foreign currencies to scheduled
banks, 4[****] 5[the Exim Bank], 6[the Reconstruction Bank or the Small
Industries Bank], the Industrial Finance Corporation, any State Financial
Corporation and any other financial institution as may, on the recommendation of
the Bank, be approved by the Central Government and on such terms and
1
Subs. by Act 24 of 1978, s.4, for cl. 12A (w.e.f. 21-7-1978).
2
Ins. by sec. 2 of the RBI (Amendment) Act, 2006 (Act No. 26 of 2006) (w.e.f. 9.1.2007).
3
Ins. by s.4, Act 24 of 1978 (w.e.f. 21-7-1978).
4
5
6
conditions as may be specified by the Central Board in this behalf, against
promissory notes of such bank or financial institution, as the case may be:
Provided that the borrowing bank or financial institution, as the case may be,
furnishes a declaration in writing to the effect that –
(a) it has made loans and advances in foreign currencies for financing
international trade or for the import of capital goods or for such other
purposes as may be approved by the Central Government; and
(b) that the amount of loans or advances so made and outstanding at any time
will not be less than the outstanding amount of the loans or advances obtained
by it from the Bank;]
1
[(13) the opening of an account with an office outside India of any bank,
including a bank incorporated in India or the making of an agency agreement
with, and the acting as an agent or correspondent of, any bank incorporated
outside India, or the principal currency authority of any country under the law for
the time being in force in that country or any international or regional bank or
financial institution formed by such principal currency authorities or foreign
governments, and the investing of the funds of the Bank in the shares and
securities of any such international or regional bank or financial institution or of
any other foreign institution as may be approved by the Central Board in this
behalf];
2
[(13A) participation in any arrangement for the clearing and settlement of any
amounts due from, or to, any person or authority on account of the external trade
of India with any other country or group of countries or of any remittances to, or
from, that country or group of countries, including the advancing, or receiving, of
any amount in any currency in connection therewith, and, for that purpose,
becoming, with the approval of the Central Government, a member of any
international or regional clearing union of central banks, monetary or other
authorities, or being associated with any such clearing arrangements, or becoming
a member of any body or association formed by central banks, monetary or other
similar authorities, or being associated with the same in any manner];
(14) the borrowing of money for a period not exceeding one month for the
purposes of the business of the Bank, and the giving of security for money so
borrowed:
Provided that no money shall be borrowed under this clause from any person
in India 3[* * *] other than a scheduled bank 4[* * *] or from any person
1
Subs. by Act 24 of 1978, s.4 for cl. (13) (w.e.f. 21-7-1978).
2
Ins. by Act 44 of 1973, s.2 (retrospectively).
3
The words “or Burma” ins. by the M. O. 1937, omitted by Act 11 of 1947, s.11, (w.e.f. 1-4-1947).
4
The words “or a Burma Scheduled Bank” ins. by the M. O. 1937, omitted by s.11, Act 11 of 1947 (w.e.f.
1-4-1947).
outside India 1[* * *] other than a bank which is the principal currency
authority of any country under the law for the time being in force in that
country:
Provided further that the total amount of such borrowing from persons in India
2
[* * *] shall not at any time exceed the amount of the 3[capital] of the Bank:
4
[* * * * *]
(15) the making and issue of bank notes subject to the provisions of this Act 5[* *
*]; 6[* * *]
7
[(15A) the exercise of powers and functions and the performance of duties
entrusted to the Bank under this act or under any other law for the time being in
force;]
8
[(15B) the providing of facilities for training in banking and for the promotion of
research, where, in the opinion of the Bank, such provision may facilitate the
exercise by the Bank of its powers and functions, or the discharge of its duties;]
(16) generally, the doing of all such matters and things as may be incidental to or
consequential upon the exercise of its powers or the discharge of its duties under
this Act 9[* * *].
18. Power of direct discount.
10
[* * *] When, in the opinion of the 11[Bank] 12[* * *], a special occasion has
arisen making it necessary or expedient that action should be taken 13[under this
section] for the purpose of regulating credit in the interests of Indian 14[* * *]
1
The words “and Burma” ins. by the M. O. 1937, omitted by s.11, Act 11 of 1947 (w.e.f. 1-4-1947).
2
Ibid.
3
Subs. by Act 32 of 1951, s.7, for “share capital” (w.e.f. 1-11-1951).
4
Cl. (14A) Ins. by Act 79 of 1956, s.43 and Sch.II (w.e.f. 22-10-1956), omitted by Act 38 of 1959, s.64 and
Sch.III (w.e.f. 1-10-1959).
5
The words “and the making and issue of Burma notes in accordance with the law of Burma” ins. by the
M. O. 1937, omitted by Act 11 of 1947, s.11 (w.e.f. 1-4-1947).
6
The word “and” omitted by ordinance 47 of 1945, s.6.
7
Subs. by Act 23 of 1955, s.52 and Sch.III for cl. (15A) (w.e.f. 1-7-1955).
8
Ins. by Act 58 of 1968, s.24 (w.e.f. 1-2-1969).
9
The words “and the law of Burma” ins. by the M. O. 1937, omitted by Act 11 of 1947, s.11 (w.e.f. 1-4-
1947).
10
The brackets and figure “(1)” omitted by Act 51 of 1974, s.7.
11
Subs. by Act 32 of 1951, s.8 for “Central Board” (w.e.f. 1-1-1949).
12
Certain words omitted by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).
13
Subs. by Act 51 of 1974, s.7, for “under this sub-section”.
14
trade, commerce, industry and agriculture, the Bank may, notwithstanding any
limitation contained in 1[* * *] section 17, –
2
[(1) purchase, sell or discount any bill of exchange or promissory note though
such bill or promissory note is not eligible for purchase or discount by the Bank
under that section; or]
3
[* * * * *]
4
[(3) make loans or advances to –
(a) a State co-operative bank, or
(b) on the recommendation of a State co-operative bank, to a co-operative

society registered within the area in which the State co-operative bank
operates, or
(c) any other person,
repayable on demand or on the expiry of fixed periods, not exceeding ninety

days, on such terms and conditions as the Bank may consider to be sufficient.]
5
[* * * * * * *]
6
[* * * * * * *]
7
[18A. Validity of loan or advance not to be questioned.
Notwithstanding anything to the contrary contained in any other law for the time
being in force, –
(a) the validity of any loan or advance granted by the Bank in pursuance of the
provisions of this Act shall not be called in question merely on the ground of
non-compliance with the requirements of such other law as aforesaid or of any
resolution, contract, memorandum, articles of association or other instrument:
Provided, that nothing in this clause shall render valid any loan or advance
obtained by any company or co-operative society where such company or
1
Certain words omitted by Act 51 of 1974, s.7.
2
Subs. by s.7, Act 51 of 1974, for the former clause.
3
Cl. 2 omitted by Act 24 of 1978, s.5 (w.e.f. 21-7-1978).
4
Subs. by s.7, Act 51 of 1974, for the former clause.
5
The proviso omitted by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).
6
Sub-section (2) omitted by Act 51 of 1974, s.7.
7
Ins. by s. 8, Act 51 of 1974.
co-operative society is not empowered by its memorandum to obtain loans
or advances;
(b) where a loan or advance has been granted under clause (3A) or under
clause (3B) of section 17 or a loan or advance granted under clause (3) of
section 18 by the Bank to any person has been applied by such person, wholly
or in part, in making a loan or advance to any borrowers, any sum received –
(i) by the borrowing bank on account of bills of exchange in respect of

which the declaration under clause (i) of the proviso to clause (3A) of
section 17 has been furnished or in repayment or realisation of the
outstanding loans and advances referred to in clause (ii) of the said proviso
or in the proviso to clause (3B) of the said section, or
(ii) by the borrowing bank or any other person in repayment or realisation

of loans and advances granted to a borrower out of funds obtained by it or
by him from the Bank under section 18,
shall be utilised only for the repayment by the borrowing bank or other person, as
the case may be, of the amounts due to be repaid by it or by him to the Bank, and
shall be held by it or by him in trust for the Bank, until such time as the amounts
are so repaid.]
19. Business which the Bank may not transact.
Save as otherwise provided in sections 17, 18, 1[42] and 45, the Bank may not –
(1) engage in trade or otherwise have a direct interest in any commercial,

industrial, or other undertaking except such interest as it may in any way
acquire in the course of the satisfaction of any of its claims:
Provided that all such interests shall be disposed of at the earliest possible
moment;
2
[(2) purchase the shares of any banking company or of any other company, or
grant loans upon the security of any such shares;]
(3) advance money on mortgage of, or otherwise on the security of,

immovable property or documents of title relating thereto, or become the
owner of immovable property, except so far as is necessary for its own
business premises and residences for its officers and servants;
(4) make loans or advances;

1
Ins. by Act 38 of 1956, s.2 (w.e.f. 6-10-1956).
2
Subs. by Act 32 of 1951, s.9, for cl. (2) (w.e.f. 1-11-1951).
(5) draw or accept bills payable otherwise than on demand;
(6) allow interest on deposits or current accounts.
CHAPTER III
CENTRAL BANKING FUNCTIONS
20. Obligation of the bank to transact Government business.
The Bank shall undertake to accept monies for account of 1[* * *] the Central
Government 2[* * *] and to make payments up to the amount standing to the
credit of 3[its account], and to carry out 4[its exchange], remittance and other
banking operations, including the management of the public debt 5[of the Union].
6
[* * * *]
21. Bank to have the right to transact Government business in India.
(1) The 7[Central Government] 8[* * *] shall entrust the Bank, on such conditions
as may be agreed upon, with all 9[its] money, remittance, exchange and banking
transactions in India, and, in particular, shall deposit free of interest all 10[its] cash
balances with the Bank:
Provided that nothing in this sub-section shall prevent the 11[Central
1
Subs. by the M.O. 1937 for certain words.
2
The words and letter “and the Governments of Part A States” omitted by Act 37 of 1956, s. 104 (w.e.f. 1-
11-1956).
3
Subs. by s. 104, Act 37 of 1956, for “their accounts respectively” (w.e.f. 1-11-1956).
4
Subs. by s. 104, Act 37 of 1956, for “their exchange” (w.e.f. 1-11-1956).
5
Ins. by s. 104, Act 37 of 1956, (w.e.f. 1-11-1956).
6
S. 20A Transaction of business for British Military Administration, Burma) which was temporarily
inserted by Ordinance 19 of 1945 has now been omitted owing to the repeal of the Ordinance by Act 11 of
1947.
7
Subs. by the M.O. 1937, for “G.G. in C.”
8
The words “and the State Governments” omitted by Act 37 of 1956, s. 104 (w.e.f. 1-11-1956).
9
Subs. by s. 104, Act 37 of 1956, for “their” (w.e.f. 1-11-1956).
10
11
Government] 1[* * *] from carrying on money transactions at places where
the Bank has no branches or agencies, and the 2[Central Government] 3[***]
may hold at such places such balances as 4[it] may require.
(2) The 5[Central Government] 6[***] shall entrust the Bank, on such conditions
as may be agreed upon, with the management of the public debt and with the issue
of any new loans.
(3) In the event of any failure to reach agreement on the conditions referred to in
this section the 7[Central Government] shall decide what the conditions shall be.
8
[(4) Any agreement made under this section shall be laid, as soon as may be after
it is made, before Parliament.]
9
[* * * *]
10
[21A. Bank to transact Government business of States on agreement.
(1) The Bank may by agreement with the Government of any 11[***] State 12[* *
*] undertake–
(a) all its money, remittance, exchange and banking transactions in India,
including in particular, the deposit, free of interest, of all its cash balances
with the Bank; and
(b) the management of the public debt of, and the issue of any new loans by,
that State.
(2) Any agreement made under this section shall be laid, as soon as may be after it
is made, before Parliament.]
1
The words “or any State Government” omitted by s. 104, Act 37 of 1956, (w.e.f. 1-11-1956).
2
3
The words “and the State Governments” omitted by Act 37 of 1956, s. 104 (w.e.f. 1-11-1956).
4
5
6
The words “and each State Government” omitted by s. 104, Act 37 of 1956, (w.e.f. 1-11-1956).
7
8
Subs. by s. 104 Act 37 of 1956, for sub-section (4) (w.e.f. 1-11-1956).
9
Sub-section (5) ins. by Act. 32 of 1951, s. 11 (w.e.f. 1-11-1951), omitted by Act 37 of 1956, s. 104 (w.e.f.
1-11-1956).
10
Ins. by Act 32 of 1951, s. 12 (w.e.f. 1-11-1951).
11
The word and letter “Part B” omitted by Act 37 of 1956, s. 104 (w.e.f. 1-11-1956).
12
The brackets and words “(including the autonomous State of Meghalaya)” ins. by Act 55 of 1969, s. 75
were omitted by Act 81 of 1971, s. 72 (w.e.f. 21-1-1972).
1
[21B. Effect of agreements made between the Bank and certain States before the 1st
November, 1956.
(1) Any agreement made under section 21 or section 21A between the Bank and
the Government of a State specified in the Explanation below and in force
immediately before the 1st day of November, 1956,shall , as from that day have
effect as if it were an agreement made on that day under section 21A between the
Bank and the Government of the corresponding State subject to such
modifications, if any, being of a character not affecting the general operation of
the agreement, as may be agreed upon between the Bank and the Government of
the corresponding State, or in default of such agreement, as may be made therein
by order of the Central Government.
Explanation. – In this sub-section ‘‘corresponding State’’ means,–
(a) in relation to the agreement between the Bank and the State of Andhra,
the State of Andhra Pradesh;
(b) in relation to the agreement between the Bank and any other Part-A
State as it existed before the 1st day of November, 1956, the State with the
same name, and
(c) in relation to the agreement between the Bank and the Part B State of
Mysore or Travancore-Cochin as it existed before the 1st day of
November, 1956, the State of Mysore or Kerala respectively.
(2) Any agreement made under section 21A between the Bank and the
Government of the Part B State of Hyderabad, Madhya Bharat or Saurashtra shall
be deemed to have terminated on the 31st day of October, 1956.]
22. Right to issue bank notes.
(1) The Bank shall have the sole right to issue bank notes in 2[India], and may, for
a period which shall be fixed by the 3[Central Government] on the
recommendation of the Central Board, issue currency notes of the Government of
India supplied to it by the 4[Central Government], and the provisions of this Act
applicable to bank notes shall, unless a contrary intention appears, apply to all
currency notes of the Government of India issued either by the 5[Central
1
Ins. by Act 37 of 1956, s. 104 (w.e.f. 1-11-1956).
2
Subs. by Act 32 of 1951, s. 2, for “the States” (w.e.f. 1-11-1951).
3
Subs. by the M.O. 1937, for “G.G. in C”.
4
5
Government] or by the Bank in like manner as if such currency notes were bank
notes, and references in this Act to bank notes shall be construed accordingly.
(2) On and from the date on which this Chapter comes into force the 1[Central
Government] shall not issue any currency notes.
23. Issue Department.
(1) The issue of bank notes shall be conducted by the Bank in an Issue
Department which shall be separated and kept wholly distinct from the Banking
Department, and the assets of the Issue Department shall not be subject to any
liability other than the liabilities of the Issue Department as hereinafter defined in
section 34.
(2) The Issue Department shall not issue bank notes to the Banking Department or
to any other person except in exchange for other bank notes or for such coin,
bullion or securities as are permitted by this Act to form part of the Reserve.
2
[* * * * *]
3
[24. Denominations of notes.
(1) Subject to the provisions of sub-section (2), bank notes shall be of the
denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty
rupees, one hundred rupees, five hundred rupees, one thousand rupees, five
thousand rupees and ten thousand rupees or of such other denominational values,
not exceeding ten thousand rupees, as the Central Government may, on the
recommendation of the Central Board, specify in this behalf.
(2) The Central Government may, on the recommendation of the Central Board,
direct the non-issue or the discontinuance of issue of bank notes of such
denominational values as it may specify in this behalf.]
25. Form of bank notes.
The design, form and material of bank notes shall be such as may be approved by
the 4[Central Government] after consideration of the recommendations made by
Central Board.
1
2
Sub-section (3) ins. by the M.O. 1937, omitted by Act 11 of 1947, s. 13 (w.e.f. 1-4-1947).
3
Subs. by Act 58 of 1968, s. 25, for s. 24 (w.e.f. 1-2-1969).
4
Subs. by the M.O. 1937, for “G.G. in C.”.
26. Legal tender character of notes.
(1) Subject to the provisions of sub-section (2), every bank note shall be legal
tender at any place in 1[India] in payment or on account for the amount expressed
therein and shall be guaranteed by the 2[Central Government].
(2) On recommendation of the Central Board the 3[Central Government] may, by

notification in the Gazette of India, declare that, with effect from such date as may
be specified in the notification, any series of bank notes of any denomination shall
cease to be legal tender 4[save at such office or agency of the Bank and to such
extent as may be specified in the notification].
5
[* * * * *]
6
[26A. Certain bank notes to cease to be legal tender.
Notwithstanding anything contained in section 26, no bank note of the

denominational value of five hundred rupees, one thousand rupees or ten thousand
rupees issued before the 13th day of January, 1946, shall be legal tender in
payment or on account for the amount expressed therein.]
27. Re-issue of notes.
The Bank shall not re-issue bank notes which are torn, defaced or excessively
soiled.
28. Recovery of notes lost, stolen, mutilated or imperfect.
7
[* * *] Notwithstanding anything contained in any enactment or rule of law to
the contrary, no person shall of right be entitled to recover from the 8[Central
Government] or the Bank, the value of any lost, stolen, mutilated or imperfect
currency note of the Government of India or bank note:
1
2
3
4
Subs. by Act 32 of 1951, s. 13, for “save at an office or agency of the Bank” (w.e.f. 1-11-1951).
5
6
Ins. by Act 62 of 1956, s. 2 and Sch. (w.e.f. 1-11-1956).
7
The brackets and figure “(1)” and sub-section (2) ins. by the M.O. 1937, omitted by Act 11 of 1947, s. 15
(w.e.f. 1-4-1947).
8
Provided that the Bank may, with the previous sanction of the 1[Central
Government], prescribe the circumstances in and the conditions and
limitations subject to which the value of such currency notes or bank notes
may be refunded as of grace and the rules made under this proviso shall be
laid on the table 2[* * *] of 3[Parliament].
4
[* * * * *]
5
[28A. Issue of special bank notes and special one-rupee notes in certain cases.
(1) For the purpose of controlling the circulation of bank notes without India, the
Bank may, notwithstanding anything contained in any other provision of this Act,
issue bank notes of such design, form and material as may be approved under sub-
section (3) (hereinafter in this section referred to as special bank notes) of the
denominational values of five rupees, ten rupees and one hundred rupees.
(2) For the purpose of controlling the circulation of Government of India one
rupee notes without India, the Central Government may, notwithstanding
anything contained in any other provision of this Act or in the Currency
Ordinance, 1940, issue Government of India notes of the denominational value of
one rupee of such design, form and material as may be adopted under sub-section
(3) (hereinafter in this section referred to as special one rupees notes).
(3) The design, form and material of the special bank notes shall be such as may
be approved by the Central Government after consideration of the
recommendations made by the Governor and of the special one-rupee notes shall
be such as the Central Government may think fit to adopt.
(4) Neither the special bank notes nor the special one-rupee notes shall be legal
tender in India.
(5) The special one-rupee note shall be deemed to be included in the expression
‘‘rupee coin’’ for all the purposes of this Act except section 39, but shall be
deemed not to be a currency note for any of the purposes of this Act.
(6) Where a special bank note is on its face expressed to be payable at a specified
office or branch of the Bank, the obligation imposed by section 39 shall be only
on the specified office or branch and, further, shall be subject to such regulations
as may be made under this section.
1
Subs. by M.O. 1937 for “G. G. in C”.
2
The words “of both Houses” omitted by the A.O. 1948.
3
Subs. by the A. O. 1950. for “the Central Legislature”.
4
The brackets and figure (I) and sub. section (2) ins. by the M.O. 1937, omitted by Act 11 of 1947, s. 15
(w.e.f. 1-4-1947).
5
Ins. by Act 14 of 1959, s. 2.
(7) The Bank may, with the previous sanction of the Central Government, make
regulations to provide for all matters for which provision is necessary or
convenient for the purpose of giving effect to the provisions of this section, and,
in particular, the manner in which, and the conditions or limitations subject to
which–
(i) bank notes and one-rupee notes in circulation in any country outside India
may be replaced by special notes issued under this section;
(ii) any such special notes may be exchanged for any other bank notes or one-
rupee notes].
29. Bank exempt from stamp duty on bank notes.
The Bank shall not be liable to the payment of any stamp duty under the Indian
Stamp Act, 1899, in respect of bank notes 1[* * *] issued by it.
30. Powers of Central Government to supersede Central Board.
(1) If in the opinion of the 2[Central Government] the Bank fails to carry out any
of the obligations imposed on it by or under this Act 3[* * *] 4[the Central
Government] may, by notification in the Gazette of India, declare the Central
Board to be superseded, and thereafter the general superintendence and direction
of the affairs of the Bank shall be entrusted to such agency as the 5[Central
Government] may determine, and such agency may exercise the powers and do all
acts and things which may be exercised or done by the Central Board under this
Act.
(2) When action is taken under this section the 6[Central Government] shall cause
a full report of the circumstances leading to such action and of the action taken to
be laid before 7[Parliament] at the earliest possible opportunity and in any case
within three months from the issue of the notification superseding the Board.
31. Issue of demand bills and notes.
1
The words “or Burma notes” ins. by the M.O. 1937, omitted by Act 11 of 1947, s. 16 (w.e.f. 1-4-1947).
2
3
The words “or by or under the law of Burma” ins. by the M.O. 1937, omitted by Act 11 of 1947, s. 17
(w.e.f. 1-4-1947).
4
Subs. by the M.O. 1937, for “he”.
5
6
7
Subs. by the A.O. 1950, for “the Central Legislature”.
1
[(1)] No person in 2[India] other than the Bank or, as expressly authorized by this
Act, the 3[Central Government] shall draw, accept, make or issue any bill of
exchange, hundi, promissory note or engagement for the payment of money
payable to bearer on demand, or borrow, owe or take up any sum or sums of
money on the bills, hundis or notes payable to bearer on demand of any such
person:
Provided that cheques or drafts, including hundis, payable to bearer on

demand or otherwise may be drawn on a person’s account with a banker,
shroff or agent.
4
[(2) notwithstanding anything contained in the Negotiable Instruments Act,
1881, no person in 5[India] other than the Bank or, as expressly authorised by this
Act, the Central Government shall make or issue any promissory note expressed
to be payable to the bearer of the instrument.]
6
[(3) notwithstanding anything contained in this section, the Central Government
may authorize any scheduled bank to issue electoral bond.
Explanation. - For the purposes of this sub-section, “electoral bond” means a bond
issued by any scheduled bank under the scheme as may be notified by the Central
Government.]
32. [Penalty.]
[Rep. by the Reserve Bank of India [Amendment] Act, 1974 (51 of 1974), S. 9.]
33. Assets of the Issue Department.
(1) The assets of the Issue Department shall consist of gold coin, gold bullion,
7
[foreign securities], rupee coin and rupee securities to such aggregate amount as
is not less than the total of the liabilities of the Issue Department as hereinafter
defined.
8
[(2) The aggregate value of the gold coin, gold bullion and foreign securities held
as assets and the aggregate value of the gold coin and gold bullion so held shall
1
S. 31 re-numbered as sub-section (1) of that section by Act 23 of 1946, s. 2.
2
Subs. by Act. 32 of 1951, S. 2. for “the states” (w.e.f. 1-11-1951).
3
4
Ins. by Act 23 of 1946, s. 2.
5
6
Inserted by Act 7 of 2017, S. 135 (w.e.f 1-4-2017).
7
Subs. by Act 62 of 1948, s. 7, and Sch., for “sterling securities” (w.e.f. 1-1-1949).
8
Subs. by Act 48 of 1957, s. 2, (w.e.f. 31-10-1957).
not at any time be less than two hundred crores of rupees and one hundred and
fifteen crores of rupees, respectively.]
1
[(3) The remainder of the assets shall be held in rupee coin, Government of India
rupee securities of any maturity, promissory notes drawn by the National Bank for
any loans or advances under clause (4E) of section 17 and such bills of exchange
and promissory notes payable in India as are eligible for purchase by the Bank
under sub-clause (a) or sub-clause (b) or sub-clause (bb) of clause (2) of section
17 or under clause (1) of section 18.]
(4) For the purposes of this section, gold coin and gold bullion shall be valued at
2
[a price not exceeding the international market price for the time being
obtaining], rupee coin shall be valued at its face value, and securities shall be
valued 3[at rates not exceeding the market rates] for the time being obtaining.
(5) Of the gold coin and gold bullion held as assets, not less than seventeen-
twentieths shall be held in 4[India], and all gold coin and gold bullion held as
assets shall be held in the custody of the Bank or its agencies;
Provided that gold belonging to the Bank which is in any other bank or in any
mint or treasury or in transit may be reckoned as part of the assets.
5
[(6) For the purposes of this section, the foreign securities which may be held as
part of the assets shall be –
(i) securities of the following kinds payable in the currency of any foreign
country which is a member of the International Monetary Fund, namely: –
(a) balances with the bank which is the principal currency authority of that
foreign country and any other balances or securities in foreign currency
maintained with or issued by the International Monetary Fund, the
International Bank for Reconstruction and Development, the International
Development Association or the International Finance Corporation 6[or
Asian Development Bank] or the Bank for International Settlements or
7
[any banking or financial institution 8[approved] by the Central
Government] in this behalf, provided that they are repayable within a
9
[period of ten years];
1
Subs. by Act 61 of 1981, s. 61 and Sch. II, for sub-section (3) (w.e.f. 12-7-1982).
2
Subs. by Act 8 of 1991, s. 2, for “0.118489 grammes of fine gold per rupee” (w.e.f. 15-10-1990).
3
Subs. by Act 58 of 1968, s. 26, for “at the market rate” (w.e.f. 1-2-1969).
4
5
Subs. by Act 51 of 1974, s. 10 for sub-section (6).
6
Ins. by Act 24 of 1978, s. 6 (w.e.f. 21-7-1978).
7
Subs. by s. 6, 24 of 1978, for certain words (w.e.f. 21-7-1978).
8
Subs. by Act 1 of 1984, s. 4, for “notified” (w.e.f. 15-2-1984).
9
Subs. by Act 24 of 1978, s. 6, for “period of five years” (w.e.f. 21-7-1978).
33
(b) bills of exchange bearing two or more good signatures and drawn on
and payable at any place in that foreign country and having a maturity not
exceeding ninety days; and
(c) Government securities of that foreign country maturing 1[within ten

years];
(ii) any drawing rights representing a liability of the International Monetary

Fund.]
34. Liabilities of the Issue Department.
(1) The liabilities of the Issue Department shall be an amount equal to the total of
the amount of the currency notes of the Government of India and bank notes for
the time being in circulation.
2
[* * * * *]
3
[* * * * *]
35. [Initial assets and liabilities.]
[Rep. by Act 62 of 1948. s. 7 and Sch.(w.e.f. 1-1-1949).]
36. [Method of dealing with fluctuations in rupee coin assets.]
[Rep. by Act 55 of 1963, s. 3 (w.e.f. 1-2-1964).]
4
[37. Suspension of assets requirements as to foreign securities.
Notwithstanding anything contained in the foregoing provisions, the Bank may,

with the previous sanction of the Central Government, for periods not exceeding
six months in the first instance, which may, with the like sanction, be extended
from time to time by periods not exceeding three months at a time, hold as assets
foreign securities of less amount in value than that required by sub-section (2) of
section 33.
1
Subs. by s. 6, Act 24 of 1978, for “within five years” (w.e.f. 21-7-1978).
2
Sub-section (2) omitted by Act 55 of 1963, s. 2 (w.e.f. 1-2-1964).
3
4
Subs. by Act 38 of 1956, s. 4, for s. 37 (w.e.f. 6-10-1656).
34
1
[* * * * *]
38. Obligations of Government and the Bank in respect of rupee coin.
The 2[Central Government] shall undertake not 3[* * *] to put into circulation any
rupees, except through the Bank 4[** *]; and the Bank shall undertake not to
dispose of rupee coin otherwise than for the purposes of circulation 5[* * *].
39. Obligation to supply different forms of currency.
(1) The Bank shall issue rupee coin on demand in exchange for bank notes and
currency notes of the Government of India, and shall issue currency notes or bank
notes on demand in exchange for coin which is legal tender under 4a[the Coinage
Act, 2011].
(2) The Bank shall, in exchange for currency notes or bank notes of 6[two] rupees
or upwards, supply currency notes or bank notes of lower value or other coins
which are legal tender under 4a[the Coinage Act, 2011], in such quantities as may,
in the opinion of the Bank, be required for circulation; and the 7[Central
Government] shall supply such coins to the Bank on demand. If the 8[Central
Government] at any time fails to supply such coins, the Bank shall be released
from its obligations to supply them to the public.
9
[40. Transactions in foreign exchange.
The Bank shall sell to or buy from any authorised person who makes a demand in
that behalf at its office in Bombay, Calcutta, Delhi or Madras 10[or at such of its
branches as the Central Government may, by order, determine], foreign exchange
at such rates of exchange and on such conditions as the Central Government may
from time to time by general or special order determine, having regard so far as
1
Proviso omitted by Act 48 of 1957, s. 3 (w.e.f. 31-10-1957).
2
3
Certain words omitted by Act 55 of 1963, s. 4 (w.e.f. 1-2-1964).
4
The words “and as provided in that section” omitted by Ordinance 4 of 1940, s. 3.
5
Certain words omitted by Act 55 of 1963, s. 4 (w.e.f. 1-2-1964).
4a Substituted by Act 11 of 2011, S. 2, for “the Indian Coinage Act, 1906”.
6
Subs. by Act 62 of 1948, s. 7 and Sch., for “five” (w.e.f. 1-1-1949).
7
8
9
Subs. by Act 23 of 1947, s.4, for ss. 40 and 41.
10
Ins. by Act 54 of 1953, s. 5.
rates of exchange are concerned to its obligations to the International Monetary
Fund:
Provided that no person shall be entitled to demand to buy or sell foreign

exchange of a value less than two lakhs of rupees.
Explanation. – In this section ‘‘authorised person’’ means a person who is entitled

by or under the 1[Foreign Exchange Regulation Act, 1973], to buy, or as the case
may be, sell, the foreign exchange to which his demand relates.]
41. [Repealed]
[Rep. by Act 23 of 1947, s. 4 (w.e.f. 18-4-1947).
2
[41A. [Obligation to provide remittance between India and Burma.]
[Rep. by Act 11 of 1947, s. 22 (w.e.f. 1-4-1947).
42. Cash reserves of scheduled banks to be kept with the Bank.
3
[(1) Every bank included in the Second Schedule shall maintain with the Bank an
average daily balance the amount of which shall not be less than 4[such per cent.
of the total of the demand and time liabilities in India of such bank as shown in
the return referred to in sub-section (2), as the Bank may from time to time,
having regard to the needs of securing the monetary stability in the country, notify
in the Gazette of India]:
5
[****]
Explanation. – For the purposes of this section,–
1
Subs. by Act 1 of 1984, s. 5, for “Foreign Exchange Act, 1947” (w.e.f. 15-2-1984).
2
Ins. by the M.O. 1937.
3
Subs. by Act 38 of 1956, s. 5, for sub-section (1) (w.e.f. 6-10-1956).
4
Subs. by sec. 3 of the RBI (Amendment) Act, 2006 (Act No. 26 of 2006) (w.e.f.1.4.2007) for the words
“three per cent. of the total of the demand and time liabilities in India of such bank as shown in the return
referred to in sub-section (2)”.
5
The proviso which was earlier substituted by by s. 4, Act 35 of 1962 was omitted by sec. 3 of the RBI
(Amendment) Act, 2006 (Act No. 26 of 2006) (w.e.f. 9.1.2007). Prior to the omission in the year 2007, the
proviso stood as under:
“Provided that the Bank may, by notification in the Gazette of India, increase the said rate to such
higher rate as may be specified in the notification so however that the rate shall not be more than
twenty per cent of the total of the demand and time liabilities.”
(a) ‘‘average daily balance’’ shall mean the average of the balances held at the
close of business on each day 1[of a fortnight];
2
[(b) ‘‘fortnight’’ shall mean the period from Saturday to the second following
Friday, both days inclusive;]
3
[(c) ‘‘liabilities’’ shall not include –
(i) the paid-up capital or the reserves or any credit balance in the profit and
loss account of the bank;
(ii) the amount of any loan taken from the Bank 4[****] 5[or from the
Exim Bank] 6[or from the Reconstruction Bank] 7[or from the National
Housing Bank] or from the 8[National Bank] 9[* * *] or 10[from the Small
Industries Bank].
(iii) in the case of a State co-operative bank, also any loan taken by such
bank from a State Government 11[or from the National Co-operative
Development Corporation established under the National Co-operative
Development Corporation Act, 1962 (26 of 1962)] and any deposit of
money with such bank representing the reserve fund or any part thereof
12
[* * *] maintained with it by any co-operative society within its area of
operation;]
13
[(iv) in the case of a State co-operative bank, which has granted an
advance against any balance maintained with it, such balance to the extent
of the amount outstanding in respect of such advance;]
14
[(v) in the case of a Regional Rural Bank, also any loan taken by such
bank from its Sponsor Bank;]
1
Subs. by Act 1 of 1984, s. 6, for “of a week” (w.e.f. 29-3-1985).
2
Subs. by s. 6, Act 1 of 1984, for cl. (b) (w.e.f. 29-3-1985).
3
Subs. by Act 23 of 1965, s. 6, for cl. (c) (w.e.f. 1-3-1966).
4
The words “or from the Development Bank” omitted by the Industrial Development Bank (Transfer of
Undertaking and Repeal) Act, 2003 (Act No.53 of 2003), Sec. 3.
5
Ins. by Act 28 of 1981, s. 40 and Sch. II (w.e.f. 1-1-1982).
6
Ins. by Act 62 of 1984, s. 71 and Sch. III (w.e.f. 20-3-1985).
7
Ins. by Act 53 of 1987 s. 56 and the Second Schedule (w.e.f. 9-7-1988).
8
Subs. by Act 61 of 1981, s. 61 and Sch. II, for “Agricultural Refinance and Development Corporation”
(w.e.f. 12-7-1982).
9
Certain words omitted by Act 51 of 1974, s. 11.
10
11
Ins. by Act I of 1984, s. 6 (w.e.f. 29-3-1985).
12
Certain words omitted by Act 51 of 1974, s. 11.
13
Ins. by Act 51 of 1974, s. 11.
14
1
[(d) the aggregate of the ‘‘liabilities’’ of a scheduled bank which is not a
State co-operative bank, to,–
(i) the State Bank;
(ii) a subsidiary bank as defined in section 2 of the State Bank of India

(Subsidiary Banks) Act, 1959 (38 of 1959);
(iii) a corresponding new bank constituted by section 3 of the Banking

Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of
1970):
2
[(iiia) a corresponding new bank constituted by section 3 of the Banking
1980);]
(iv) a banking company as defined in clause (c) of section 5 of the

Banking Regulation Act, 1949 (10 of 1949);
(v) a co-operative bank; or
(vi) any other financial institution notified by the Central Government in

this behalf, shall be reduced by the aggregate of the liabilities of all such
banks and institutions to the scheduled bank;
(e) the aggregate of the ‘‘liabilities’’ of a scheduled bank which is a State co-
operative bank, to, –
(i) the State Bank;
(ii) a subsidiary bank as defined in section 2 of the State Bank of India

(Subsidiary Banks) Act, 1959 (38 of 1979);
(iii) a corresponding new bank constituted by section 3 of the Banking

1970);
3
[(iiia) a corresponding new bank constituted by section 3 of the Banking
1980):]
1
Ins. by Act 51 of 1974, s. 11.
2
3
Ins. by Act 1 of 1984, s. 6 (w.e.f. 29-3-1985).
(iv) a banking company as defined in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949); or
(v) any other financial institution notified by the Central Government in

this behalf, shall be reduced by the aggregate of the liabilities of all such
banks and institutions to the State Co-operative bank.]
(1A) Notwithstanding anything contained in sub-section (1), the Bank may, by

notification in the Gazette of India, direct that every scheduled bank shall, with
effect from such date as may be specified in the notification, maintain with the
Bank, in addition to the balance prescribed by or under sub-section (1), an
additional average daily balance the amount of which shall not be less than the
1
[rate specified in the notification, such additional balance being calculated with
reference to the excess of the total of the demand and time liabilities of the bank
as shown in the return referred to in sub-section (2) over the total of its demand
and time liabilities] at the close of business on the date specified in the
notification as shown by such return so however, that the additional balance shall,
in no case, be more than such excess:
2
[Provided that the Bank may, by a separate notification in the Gazette of
India, specify different dates in respect of a bank subsequently, included in the
Second Schedule.]
3
[****]
1
Subs. by Act 35 of 1962, s. 4, for certain words.
2
Ins. by Act 1 of 1984, s. 6 (w.e.f. 29-3-1985). Prior to this, the proviso was omitted by Act 35 of 1962, s.
4, (w.e.f. 15-9-1962).
3
Sub-sections(1AA) and (1B) omitted by Act 26 of 2006, s. 3. Before omission, sub-sections (1AA) and
(1B) stood as under:
[(1AA) Notwithstanding anything contained in sub-section (1) or subsection (1A), it shall not be
necessary for any scheduled bank to maintain with the Bank any balance which shall be more than
3[twenty per cent] of the total of its demand and time liabilities as shown in the return referred to
in sub-section (2).]
(1B) Where any scheduled bank maintains, in pursuance of a notification issued under the proviso
to sub-section (1) or under sub-section (1A), any balance with the Bank the amount of which is
not less than that required to be maintained by such notification, the Bank may pay to the
scheduled bank interest at such rate or rates as may be determined by the Bank from time to time
on the amount by which such balance actually maintained is in excess of the balance which the
scheduled bank would have to maintain, if no such notification was issued:
Provided that no interest shall be payable on any such amount actually maintained as is in excess
of the balance required to be maintained by or under sub-section (1) or under sub-section (1A).]
Provided further that where the Bank does not, under sub-section (5), demand the payment of the
penalty imposed by sub-section (3), it may pay interest at such rate or rates as may be determined
by the Bank from time to time on the amount actually maintained with it by the scheduled bank,
notwithstanding that such amount is less than the balance required to be maintained in pursuance
of a notification issued under the proviso to sub-section (1) or under sub-section (1A).]
1
[(1C) The Bank may, for the purposes of this section, specify from time to time
with reference to any transaction or class of transactions that such transaction or
transactions shall be regarded as liability in India of a scheduled bank, and if any
question arises as to whether any transaction or class of transactions shall be
regarded, for the purposes of this section, as liability in India of a schedule bank,
the decision of the Bank thereon shall be final.]
2
[(2) Every scheduled bank shall send to the Bank a return signed by two
responsible officers of such bank showing–
(a) the amount of its demand and time liabilities and the amount of its
borrowings from banks in India 3[classifying them into demand and time
liabilities],
4
[* * * * *]
(b) the total amount of legal tender notes and coins held by it in India,
(c) the balance held by it at the Bank in India,
(d) the balances held by it at other banks in current account and the money at
call and short notice in India.,
(e) the investments (at book value) in Central and State Government securities
including treasury bills and treasury deposit receipts,
(f) the amount of advances in India,
(g) the inland bills purchased and discounted in India 5[and foreign bills
purchased and discounted], 6[at the close of business on each alternate Friday,
and every such return shall be sent not later than seven days after the date to
which it relates]:
7
[Provided that the Bank may, by notification in the Gazette of India,
delete or modify or add to any of the particulars specified in the foregoing
clauses:
Provided further that where 8[such alternate] Friday is a public holiday

under the Negotiable Instruments Act, 1881, for one or more offices of a
1
Ins. by Act 1 of 1984, s. 6 (w.e.f. 29-3-1985).
2
3
4
Cl. (aa) omitted by s. 11, Act 51 of 1974.
5
Ins. by Act 54 of 1953, s. 6.
6
Subs. by Act 1 of 1984, s. 6 for certain words (w.e.f. 29-3-1985).
7
Subs. by Act 51 of 1974, s. 11, for “Provided that”.
8
Ins. by Act 1 of 1984, s. 6 (w.e.f. 29-3-1985).
scheduled bank, the return shall give the preceding working day’s figures
in respect of such office or offices, but shall nevertheless be deemed to
relate to that Friday:
1
[Provided also that where the Bank is satisfied that the furnishing of a
fortnightly return under this sub-section is impracticable in the case of any
scheduled bank by reason of the geographical position of the bank and its
branches, the Bank may allow such bank –
(i) to furnish a provisional return for the fortnight within the period
aforesaid to be followed by a final return not later than twenty days
after the date to which it relates, or
(ii) to furnish in lieu of a fortnightly return a monthly return to be sent

not later than twenty days after the end of the month to which it relates
giving the details specified in this sub-section in respect of such bank
at the close of business for the month.]]
2
[(2A) Where the last Friday of a month is not an alternate Friday for the purpose
of sub-section (2), every scheduled bank shall send to the Bank, a special return
giving the details specified in sub-section (2) as at the close of business on such
last Friday or where such last Friday is a public holiday under the Negotiable
Instruments Act, 1881 as at the close of business on the preceding working day
and such return shall be sent not later than seven days after the date to which it
relates.]
3
[(3) If the average daily balance held at the Bank by a scheduled bank during any
4
[fortnight] is below the minimum prescribed by or under sub-section (1) or sub-
section (1A), such Scheduled bank shall be liable to pay to the Bank in respect of
that 5[fortnight] penal interest at a rate of three per cent, above the bank rate on
the amount by which such balance with the Bank falls short of the prescribed
minimum, and if during the next succeeding 6[fortnight], such average daily
balance is still below the prescribed minimum the rates of penal interest shall be
increased to a rate of five per cent, above the bank rate in respect of that
7
[fortnight) and each subsequent 8[fortnight) during which the default continues
on the amount by which such balance at the Bank falls short of the prescribed
minimum.]
1
Subs by Act 1 of 1984 s. 6, for the third proviso (w.e.f. 29-3-1985).
2
. Ins. by Act 1 of 1984, s. 6 (w.e.f. 29-3-1985).
3
4
Subs. by Act 1 of 1984, s. 6, for “week” (w.e.f. 29-3-1985).
5
6
7
8
1
[(3A) When under the provisions of sub-section (3) penal interest at the
increased rate of five per cent, above the bank rate has become payable by a
scheduled bank, 2[if thereafter the average daily balance held at the Bank during
the next succeeding 3[fortnight] is still below the prescribed minimum.
(a) every director, manager or secretary of the scheduled bank, who is

knowingly and wilfully a party to the default, shall be punishable with fine
which may extend to five hundred rupees and with a further fine which may
extend to five hundred rupees for each subsequent 4[fortnight] during which
the default continues, and
(b) the Bank may prohibit the scheduled bank from receiving after the said
5
[fortnight] any fresh deposit,]
and, if default is made by the scheduled bank in complying with the prohibition
referred to in clause (b), every director and officer of the scheduled bank who is
knowingly and wilfully a party to such default or who through negligence or
otherwise contributes to such default shall in respect of each such default be
punishable with fine which may extend to five hundred rupees and with a further
fine which may extend to five hundred rupees for each day after the first on which
a deposit received in contravention of such prohibition is retained by the
scheduled bank.
Explanation. – In this sub-section ‘‘officer’’ includes a 6[* * *] manager,

secretary, branch manager, and branch secretary.]
(4) Any scheduled bank failing to comply with the provisions of subsection (2)
7
[shall be liable to pay to the Bank] a penalty of one hundred rupees for each day
during which the failure continues.
8
[(5) (a) The penalties imposed by sub-sections (3) and (4) shall be payable within
a period of fourteen days from the date on which a notice issued by the Bank
demanding the payment of the same is served on the scheduled bank, and in the
event of a failure of the scheduled bank to pay the same within such period, may
be levied by a direction of the principal civil court having jurisdiction in the area
where an office of the defaulting bank is situated, such direction to be made only
upon an application made in this behalf to the court by the Bank;
1
Ins. by Act 38 of 1940, s. 2.
2
Subs. by Act 38 of 1956, s. 5, for certain words (w.e.f. 6-10-1956).
3
4
5
Subs. by Act 1 of 1984, s. 6 for “Week” (w.e.f. 29-3-1985).
6
The words “managing agent,” omitted by Act 32 of 1951, s. 16 (w.e.f. 1-11-1951).
7
Subs. by s. 16, Act 32 of 1951., for certain words (w.e.f. 1-11-1951).
8
Subs. by Act 35 of 1962, s. 4, for sub-section (5).
42
(b) when the court makes a direction under clause (a), it shall issue a
certificate specifying the sum payable by the scheduled bank and every such
certificate shall be enforceable in the same manner as if it were a decree made
by the court in a suit;
(c) notwithstanding anything contained in this section, if the Bank is satisfied

that the defaulting bank had sufficient cause for its failure to comply with the
provisions of sub-sections (1), (1A) or (2), it may not demand the payment of
the penal interest or the penalty, as the case may be.]
1
[(6) The Bank shall, save as hereinafter provided, by notification in the Gazette
of India, –
(a) direct the inclusion in the Second Schedule of any bank not already so
included which carries on the business of banking 2[in India] and which–
(i) has a paid-up capital and reserves of an aggregate value of not less than
five lakhs of rupees, and
(ii) satisfies the Bank that its affairs are not being conducted in a manner
detrimental to the interests of its depositors, and
(iii) 3[is a State co-operative bank or a company] as defined in 4[section 3

of the Companies Act, 1956 (1 of 1956), or an institution notified by the
Central Government in this behalf] or a corporation or a company
incorporated by or under any law in force in any place 5[outside India];
(b) direct the exclusion from that Schedule of any scheduled bank. –
(i) the aggregate value of whose paid-up capital and reserves becomes at any
time less than five lakhs of rupees, or
(ii) which is, in the opinion of the Bank after making an inspection under
section 35 of the 6[Banking Regulation Act, 1949 (10 of 1949)], conducting
its affairs to the detriment of the interests of its depositors, or
(iii) which goes into liquidation or otherwise ceases to carry on banking

business:
1
Subs. by Act 10 of 1949, s. 55 and Sch. I, for sub-section (6) (w.e.f. 16-3-1949).
2
Subs. by Act 32 of 1951, s. 16 for “in any state of India” (w.e.f. 1-11-1951).
3
Subs. by Act 23 of 1965, s. 6, for “is a company” (w.e.f. 1-3-1966).
4
Subs. by Act 19 of 1957, s. 4, for “clause (2) of section 2 of the Indian Companies Act, 1913 (7 of
1913)”.
5
Subs. by Act 32 of 1951, s. 16, for “outside the States of India” (w.e.f. 1-11-1951).
6
43
Provided that the Bank may, on application of the scheduled bank
concerned and subject to such conditions, if any, as it may impose, defer
the making of a direction under sub-clause (i) or sub-clause (ii) of clause
(b) for such period as the Bank considers reasonable to give the scheduled
bank an opportunity of increasing the aggregate value of its paid-up
capital and reserves to not less than five lakhs of rupees or, as the case
may be, of removing the defects in the conduct of its affairs:
(c) alter the description in that Schedule whenever any scheduled bank
changes its name.
Explanation.– In this sub-section the expression ‘‘value’’ means the real

or exchangeable value and not the nominal value which may be shown in
the books of the bank concerned; and if any dispute arises in computing
the aggregate value of the paid-up capital and reserves of a bank, a
determination thereof by the Bank shall be final for the purposes of this
sub-section.]
1
[(6A) In considering whether a State co-operative bank or a regional rural bank
should be included in or excluded from the Second Schedule, it shall be
competent for the Bank to act on a certificate from the National Bank on the
question whether or not a State co-operative bank or a regional rural bank, as the
case may be, satisfies the requirements as to paid-up capital and reserves or
whether its affairs are not being conducted in a manner detrimental to the interests
of its depositors.]
2
[(7) The Bank may, for such period and subject to such conditions as may be
specified, grant to any scheduled bank such exemptions from the provisions of
this section as it thinks fit with reference to all or any of its offices or with
reference to the whole or any part of its assets and liabilities.]
3
[43. Publication of consolidated statement by the Bank.
The Bank shall cause to be published each 4[fortnight] a consolidated statement

showing the aggregate liabilities and assets of all the scheduled banks together,
based on the returns and information received under this Act or any other law for
the time being in force.]
1
Ins. by Act 61 of 1981, s. 61 and Sch. II (w.e.f. 12-7-1982).
2
Ins. by Act 32 of 1951, s. 16 (w.e.f. 1-11-1951).
3
Subs. by Act 51 of 1974, s. 12, for s. 43.
4
1
[43A. Protection of action taken in good faith.
(1) No suit or other legal proceeding shall lie against the Bank or any of its
officers for anything which is in good faith done or intended to be done in
pursuance of section 42 or section 43 2[or in pursuance of the provisions of
Chapter IIIA].
(2) No suit or other legal proceeding shall lie against the Bank or any of its
officers for any damage caused or likely to be caused by anything which is in
good faith done or intended to be done in pursuance of section 42 or section 43
3
[or in pursuance of the provisions of Chapter IIIA].]
44. [Power to require returns from co-operative banks.]
[Rep. by the Banking Laws (Application to Co-operative Societies) Act, 1965 (23
of 1965), s. 7 (w.e.f. 1-3-1966).]
4
[45. Appointment of Agents.
(1) Unless otherwise directed by the Central Government with reference to any
place, the Bank may, having regard to public interest, convenience of banking,
banking development and such other factors which in its opinion are relevant in
this regard, appoint the National Bank, or the State Bank or a corresponding new
bank constituted under section 3 of the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970, or a corresponding new bank constituted
under section 3 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980, or any subsidiary bank as defined in the State Bank of
India (Subsidiary Banks) Act, 1959, as its agent at all places, or at any place in
India for such purposes as the Bank may specify.
(2) When any bank is appointed by the Bank as its agent under subsection (1) to
receive on behalf of the Bank any payment required to be made into the Bank, or
any bill, hundies or other securities required to be delivered into the Bank, under
any law or rule, regulations or other instructions having the force of law, the same
may be paid or delivered into the bank so appointed as the agent of the Bank.]
1
Ins. by Act 54 of 1953, s. 7.
2
Ins. by Act 35 of 1962, s. 5.
3
Ins. by Act 35 of 1962, s. 5.
4
Subs. by Act 61 of 1981, s. 61 and Sch. II, for s. 45 (w.e.f. 12-7-1982).
45
1
[CHAPTER IIIA
COLLECTION AND FURNISHING OF CREDIT INFORMATION
45A. Definitions.
In this Chapter, unless the context otherwise requires, –
(a) ‘‘banking company’’ means a banking company as defined in section 5 of

the 2[Banking Regulation Act, 1949], and includes the State Bank of India,
3
[any subsidiary bank as defined in the State Bank of India (Subsidiary Banks)
Act, 1959, any corresponding new bank constituted by section 3 of the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970,
and any other financial institution notified by the Central Government in this
behalf];
(b) ‘‘borrower’’ means any person to whom any credit limit has been
sanctioned by any banking company, whether availed of or not, and includes–
(i) in the case of a company or corporation, its subsidiaries;
(ii) in the case of a Hindu Undivided Family, any member thereof or any
firm in which such member is a partner;
(iii) in the case of a firm, any partner thereof of any other firm in which
such partner is a partner; and
(iv) in the case of an individual, any firm in which such individual is a

partner;
(c) ‘‘credit information’’ means any information relating to–
(i) the amounts and the nature of loans or advances and other credit
facilities granted by a banking company to any borrower or class of
borrowers;
(ii) the nature of security taken from any borrower 4[or class of borrowers]
for credit facilities 5[granted to him or to such class];
1
Ins. by Act 35 of 1962, s. 6.
2
Subs. by Act 51 of 1974, s. 3, for “Banking Companies Act, 1949”.
3
Subs. by s. 13, ibid., for certain words.
4
Ins. by Act 51 of 1974, s. 13.
5
Subs. by s. 13, ibid., for certain words.
(iii) the guarantee furnished by a banking company for any of its
customers 1[or any class of its customers];
2
[(iv) the means, antecedents, history of financial transactions and the
credit worthiness of any borrower or class of borrowers;
(v) any other information which the Bank may consider to be relevant for
the more orderly regulation of credit or credit policy.]
45B. Power of Bank to collect credit information.
The Bank may–
(a) collect, in such manner as it may think fit, credit information from banking
companies; and
(b) furnish such information to any banking company in accordance with the
provisions of section 45D.
45C. Power to call for returns containing credit information.
(1) For the purpose of enabling the Bank to discharge its functions under this
Chapter, it may at any time direct any banking company to submit to it such
statements relating to such credit information and in such form and within such
time as may be specified by the Bank from time to time.
(2) A banking company shall, notwithstanding anything to the contrary contained

in any law for the time being in force or in any instrument regulating the
constitution thereof or in any agreement executed by it, relating to the secrecy of
its dealings with its constituents, be bound to comply with any direction issued
under sub-section (1).
45D. Procedure for furnishing credit information to banking companies.
(1) A banking company may, in connection with any financial arrangement

entered into or proposed to be entered into by it, with any person, make an
application to the Bank in such form as the Bank may specify requesting it to
furnish the applicant with such credit information as may be specified in the
application.
1
Ins. by Act 51 of 1974, s. 13.
2
Ins. by Act 51 of 1974, s. 13.
(2) On receipt of an application under sub-section (1), the Bank shall, as soon as
may be, furnish the applicant with such credit information relating to the matters
specified in the application, as may be in its possession:
Provided that the information so furnished shall not disclose the names of the
banking companies which have submitted such information to the Bank.
(3) The Bank may in respect of each application levy such fees, not exceeding
twenty-five rupees, as it may deem fit for furnishing credit information.
45E. Disclosure of information prohibited.
(1) Any credit information contained in any statement submitted by a banking

company under section 45C or furnished by the Bank to any banking company
under section 45D, shall be treated as confidential and shall not, except for the
purposes of this Chapter, be published or otherwise disclosed.
(2) Nothing in this section shall apply to –
(a) the disclosure by any banking company, with the previous permission of
the Bank, of any information furnished to the Bank under section 45C:
(b) the publication by the Bank, if it considers necessary in the public interest
so to do, of any information collected by it under section 45C, in such
consolidated form as it may think fit without disclosing the name of any
banking company or its borrowers:
1
[(c) the disclosure or publication by the banking company or by the Bank of
any credit information to any other banking company or in accordance with
the practice and usage customary among bankers or as permitted or required
under any other law:
Provided that any credit information received by a banking company

under this clause shall not be published except in accordance with the
practice and usage customary among bankers or as permitted or required
under any other law.]
2
[(d) the disclosures of any credit information under the Credit Information
Companies (Regulation) Act, 2005 (30 of 2005).]
(3) Notwithstanding anything contained in any law for the time being in force, no
court, tribunal or other authority shall compel the Bank or any banking company
1
Ins. by Act 51 of 1974, s. 14.
2
Added by the Credit Information Companies (Regulation) Act, 2005 (Act No. 30 of 2005), Sch., Pt. I.
48
to produce or to give inspection of any statement submitted by that banking
company under section 45C or to disclose any credit information furnished by the
Bank to that banking company under section 45D.
45F. Certain claims for compensation barred.
No person shall have any right, whether in contract or otherwise, to any

compensation for any loss incurred by reason of the operation of any of the
provisions of this Chapter.
45G. [Penalties.]
[Rep. by the Reserve Bank of India (Amendment) Act,1974 (51 of 1974), s. 15.]
1
[CHAPTER IIIB
PROVISIONS RELATING TO NON-BANKING INSTITUTIONS

RECEIVING DEPOSITS AND FINANCIAL INSTITUTIONS
45H. Chapter IIIB not to apply in certain cases.
The provisions of this Chapter shall not apply to the State Bank or a banking
company as defined in section 5 of the 2[Banking Regulation Act, 1949] or 3[a
corresponding new bank as defined in clause (da) of section 5 of that Act or a
subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act,
1959] or 4[a Regional Rural Bank or a co-operative bank] or a primary
agricultural credit society or a primary credit society]:
Provided that for the purposes of this Chapter, the 5[Tamil Nadu Industrial
Investment Corporation Limited] shall not be deemed to be a banking
company.
1
Ins. by Act 55 of 1963, s.5. (w.e.f. 1-2-1964).
2
Subs. by Act 51 of 1974, s.3, for “Banking Companies Act, 1949.
3
4
Subs. by Act 21 of 1976, s.33, for the words “a co-operative bank” (w.e.f. 26.9.1975).
5
Subs. by Act 51 of 1974, s. 16, for “Madras Industrial Investment Corporation Limited”.
49
45I. Definitions.
In this Chapter, unless the context otherwise requires, –

1
[(a) ‘‘business of a non-banking financial institution’’ means carrying on of
the business of a financial institution referred to in clause (c) and includes
business of a non-banking financial company referred to in clause (f);]
2
[(aa)] ‘‘company’’ means a company as defined in section 3 of the
Companies Act, 1956 and includes a foreign company within the meaning of
section 591 of that Act:
(b) ‘‘corporation’’ means a corporation incorporated by an Act of any

legislature;
3
[(bb) ‘‘deposit’’ includes and shall be deemed always to have included any
receipt of money by way of deposit or loan or in any other form, but does not
include, –
(i) amounts raised by way of share capital;
(ii) amounts contributed as capital by partners of a firm;
(iii) amounts received from a scheduled bank or a co-operative bank or

any other banking company as defined in clause (c) of section 5 of the
Banking Regulation Act, 1949;
(iv) any amount received from, –

4
[*****]
(b) a State Financial Corporation,
(c) any financial institution specified in or under section 6A of the

Industrial Development Bank of India Act, 1964, or
(d) any other institution that may be specified by the Bank in this
behalf:
(v) amounts received in the ordinary course of business, by way of–
1
Ins. by Act 23 of 1997 s. 2 (w.e.f. 9-1-1997).
2
Cl. (a) renumbered as (aa) by Act 23 of 1997 s.2 (w.e.f. 9-1-1997).
3
Subs. by Act 1 of 1984 s.9, for cl. (bb) w.e.f. 15-2-1984).
4
Item (a) - containing the words “the Development Bank” - omitted by the Industrial Development Bank
(Transfer of Undertaking and Repeal) Act, 2003 (Act No.53 of 2003), Sec. 4.
50
(a) security deposit,
(b) dealership deposit,
(c) earnest money,
(d) advance against orders for goods, properties or services,
(vi) any amount received from an individual or a firm or an association of

individuals not being a body corporate, registered under any enactment
relating to money lending which is for the time being in force in any State;
and
(vii) any amount received by way of subscriptions in respect of a chit.
Explanation I.– ‘‘Chit’’ has the meaning assigned to it in clause (b) of

section 2 of the Chit Funds Act, 1982 (40 of 1982).
Explanation II. – Any credit given by a seller to a buyer on the sale of

any property (whether movable or immovable) shall not be deemed to
be deposit for the purposes of this clause;]
1
[Explanation III. - The amounts accepted by a co-operative society
from the members or shareholders, by whatever name called, but
excluding the amounts received as share capital, shall be deemed to be
deposits for the purposes of this clause, if such members or
shareholders are nominal or associate members, by whatever name
called, who do not have full voting rights in the meetings of such co-
operative society.]
2
[(c) ‘‘financial institution’’ means any non-banking institution which carries
on as its business or part of its business any of the following activities,
namely: –
(i) the financing, whether by way of making loans or advances or

otherwise, of any activity other than its own:
(ii) the acquisition of shares, stock, bonds, debentures or securities issued

by a Government or local authority or other marketable securities of a like
nature:
1
2
Inserted by Act 21 of 2019, s. 42 & Sch. II (w.e.f 21-2-2019).
Subs. by Act 51 of 1974, s.17, for cl. (c)
51
(iii) letting or delivering of any goods to a hirer under a hire-purchase
agreement as defined in clause (c) of section 2 of the Hire-Purchase Act,
1972:
(iv) the carrying on of any class of insurance business;
(v) managing, conducting or supervising, as foreman, agent or in any other

capacity, of chits or kuries as defined in any law which is for the time
being in force in any State, or any business, which is similar thereto;
(vi) collecting, for any purpose or under any scheme or arrangement by

whatever name called, monies in lumpsum or otherwise, by way of
subscriptions or by sale of units, or other instruments or in any other
manner and awarding prizes or gifts, whether in cash or kind, or
disbursing monies in any other way, to persons from whom monies are
collected or to any other person, 1[but does not include any institution,
which carries on as its principal business,–
(a) agricultural operations; or
(aa) industrial activity; or]
(b) the purchase or sale of any goods (other than securities) or the
providing of any services; or
(c) the purchase, construction or sale of immovable property, so

however, that no portion of the income of the institution is derived
from the financing of purchases, constructions or sales of immovable
property by other persons;]
2
[Explanation. – For the purposes of this clause, ‘‘industrial
activity’’ means any activity specified in sub-clauses (i) to (xviii)
of clause (c) of section 2 of the Industrial Development Bank of
India Act, 1964;]
(d) ‘‘firm’’ means a firm as defined in the Indian Partnership Act, 1932 3[* *
*];
(e) ‘‘non-banking institution’’ means a company, corporation 4[or cooperative

society].
1
[(f) ‘‘non-banking financial company’’ means–
1
Subs. by Act 23 of 1997, s. 2 (w.e.f. 9-1-1997).
2
Ins. by Act 23 of 1997, s.2 (w.e.f. 9-1-1997).
3
Certain words omitted by Act 1 of 1984, s. 9, (w.e.f. 15-2-1984).
4
Subs. by s.9 ibid., for certain words (w.e.f. 15-2-1984).
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company, and which has as its

principal business the receiving of deposits, under any scheme or
arrangement or in any other manner, or lending in any manner;
(iii) such other non-banking institution or class of such institutions, as the

Bank may, with the previous approval of the Central Government and by
notification in the Official Gazette, specify;]
2
[45-IA. Requirement of registration and net owned fund.
(1) Notwithstanding anything contained in this Chapter or in any other law for the
time being in force, no non-banking financial company shall commence or carry
on the business of a non-banking financial institution without–
(a) obtaining a certificate of registration issued under this Chapter; and

3
[(b) having the net owned fund of twenty-five lakh rupees or such other
amount, not exceeding hundred crore rupees, as the Bank may, by notification
in the Official Gazette, specify:
Provided that the Bank may notify different amounts of net owned fund
for different categories of non-banking financial companies.]
(2) Every non-banking financial company shall make an application for

registration to the Bank in such form as the Bank may specify:
Provided that a non-banking financial company in existence on the

commencement of the Reserve Bank of India (Amendment) Act, 1997 shall
make an application for registration to the Bank before the expiry of six
months from such commencement and notwithstanding anything contained in
sub-section (1) may continue to carry on the business of a non-banking
financial institution until a certificate of registration is issued to it or rejection
of application for registration is communicated to it.
(3) Notwithstanding anything contained in sub-section (1), a non-banking

financial company in existence on the commencement of the Reserve Bank of
1
Ins. by Act 23 of 1997, s.2, (w.e.f. 9-1-1997).
2
Ins. by Act 23 of 1997, s.3, (w.e.f. 9-1-1997).
3
Subs. by Act 23 of 2019, s. 137 (w.e.f. 9-8-2019). Prior to the substitution, the clause read as under:
“having the net owned fund of twenty five lakh rupees or such other amount, not exceeding two hundred
lakh rupees, as the Bank may, by notification in the Official Gazette, specify;”
India (Amendment) Act, 1997 and having a net owned fund of less than twenty-
five lakh rupees may, for the purpose of enabling such company to fulfil the
requirement of the net owned fund, continue to carry on the business of a non-
banking financial institution–
(i) for a period of three years from such commencement; or
(ii) for such further period as the Bank may, after recording the reasons in
writing for so doing, extend, subject to the condition that such company shall,
within three months of fulfilling the requirement of the net owned fund,
inform the Bank about such fulfilment:
Provided that the period allowed to continue business under this

subsection shall in no case exceed six years in the aggregate.
(4) The Bank may, for the purpose of considering the application for registration,
require to be satisfied by an inspection of the books of the non-banking financial
company or otherwise that the following conditions are fulfilled: –
(a) that the non-banking financial company is or shall be in a position to pay

its present or future depositors in full as and when their claims accrue;
(b) that the affairs of the non-banking financial company are not being or are
not likely to be conducted in a manner detrimental to the interest of its present
or future depositors;
(c) that the general character of the management or the proposed management
of the non-banking financial company shall not be prejudicial to the public
interest or the interest of its depositors;
(d) that the non-banking financial company has adequate capital structure and
earning prospects;
(e) that the public interest shall be served by the grant of certificate of
registration to the non-banking financial company to commence or to carry on
the business in India;
(f) that the grant of certificate of registration shall not be prejudicial to the
operation and consolidation of the financial sector consistent with monetary
stability, economic growth and considering such other relevant factors which
the Bank may, by notification in the Official Gazette, specify; and
(g) any other condition, fulfilment of which in the opinion of the Bank, shall
be necessary to ensure that the commencement of or carrying on of the
business in India by a non-banking financial company shall not be prejudicial
to the public interest or in the interest of the depositors.
(5) The Bank may, after being satisfied that the conditions specified in sub-
section (4) are fulfilled, grant a certificate of registration subject to such
conditions which it may consider fit to impose.
(6) The Bank may cancel a certificate of registration granted to a non-banking

financial company under this section if such company–
(i) ceases to carry on the business of a non-banking financial institution in

India; or
(ii) has failed to comply with any condition subject to which the certificate of
registration had been issued to it; or
(iii) at any time fails to fulfil any of the conditions referred to in clauses (a) to
(g) of sub-section (4); or
(iv) fails–
(a) to comply with any direction issued by the Bank under the provisions
of this chapter; or
(b) to maintain accounts in accordance with the requirements of any law or

any direction or order issued by the Bank under the provisions of this
Chapter; or
(c) to submit or offer for inspection its books of account and other relevant
documents when so demanded by an inspecting authority of the Bank; or
(v) has been prohibited from accepting deposit by an order made by the Bank
under the provisions of this Chapter and such order has been in force for a
period of not less than three months:
Provided that before cancelling a certificate of registration on the ground

that the non-banking financial company has failed to comply with the
provisions of clause (ii) or has failed to fulfil any of the conditions
referred to in clause (iii) the Bank, unless it is of the opinion that the delay
in cancelling the certificate of registration shall be prejudicial to public
interest or the interest of the depositors or the non-banking financial
company, shall give an opportunity to such company on such terms as the
Bank may specify for taking necessary steps to comply with such
provision or fulfillment of such condition;
Provided further that before making any order of cancellation of certificate

of registration, such company shall be given a reasonable opportunity of
being heard.
(7) A company aggrieved by the order of rejection of application for registration
or cancellation of certificate of registration may prefer an appeal, within a period
of thirty days from the date on which such order of rejection or cancellation is
communicated to it, to the Central Government and the decision of the Central
Government where an appeal has been preferred to it, or of the Bank where no
appeal has been preferred, shall be final:
Provided that before making any order of rejection of appeal, such company
shall be given a reasonable opportunity of being heard.
Explanation. – For the purposes of this section,–
(I) “net owned fund” means–
(a) the aggregate of the paid-up equity capital and free reserves as
disclosed in the latest balance-sheet of the company after
deducting therefrom–
(i) accumulated balance of loss;
(ii) deferred revenue expenditure; and
(iii) other intangible assets; and
(b) further reduced by the amounts representing–
(1) investments of such company in shares of–
(i) its subsidiaries;
(ii) companies in the same group;
(iii) all other non-banking financial companies; and
(2) the book value of debentures, bonds, outstanding loans and

advances (including hire-purchase and lease finance) made to,
and deposits with, –
(i) subsidiaries of such company; and
(ii) companies in the same group,
to the extent such amount exceeds ten per cent of (a) above.
(II) “subsidiaries” and “companies in the same group” shall have the
same meanings assigned to them in the Companies Act, 1956.
45- IB. Maintenance of percentage of assets.
(1) Every non-banking financial company shall invest and continue to invest in
India in unencumbered approved securities, valued at a price not exceeding the
current market price of such securities, an amount which, at the close of business
on any day, shall not be less than five per cent, or such higher percentage not
exceeding twenty-five per cent, as the Bank may, from time to time and by
notification in the Official Gazette, specify, of the deposits outstanding at the
close of business on the last working day of the second preceding quarter:
Provided that the Bank may specify different percentages of investment in

respect of different classes of non-banking financial companies.
(2) For the purpose of ensuring compliance with the provisions of this section, the
Bank may require every non-banking financial company to furnish a return to it in
such form, in such manner and for such period as may be specified by the Bank.
(3) If the amount invested by a non-banking financial company at the close of

business on any day falls below the rate specified under subsection (1), such
company shall be liable to pay to the Bank, in respect of such shortfall, a penal
interest at a rate of three per cent per annum above the bank rate on such amount
by which the amount actually invested falls short of the specified percentage, and
where the shortfall continues in the subsequent quarters, the rate of penal interest
shall be five per cent per annum above the bank rate on such shortfall for each
subsequent quarter.
(4) (a) The penal interest payable under sub-section (3) shall be payable within a
period of fourteen days from the date on which a notice issued by the Bank
demanding payment of the same is served on the non-banking financial company
and, in the event of a failure of the non-banking financial company to pay the
same within such period, penalty may be levied by a direction of the principal
civil court having jurisdiction in the area where an office of the defaulting non-
banking financial company is situated and such direction shall be made only upon
an application made in this behalf to the court by the Bank; and
(b) When the court makes a direction under clause (a), it shall issue a
certificate specifying the sum payable by the non-banking financial company
and every such certificate shall be enforceable in the same manner as if it were
a decree made by the court in a suit.
(5) Notwithstanding anything contained in this section, if the Bank is satisfied that
the defaulting non-banking financial company had sufficient cause for its failure
to comply with the provisions of sub-section (1), it may not demand the payment
of the penal interest.
Explanation, – For the purposes of this section,–
(i) “approved securities” means securities of any State Government or of

the Central Government and such bonds, both the principal whereof and
the interest whereon shall have been fully and unconditionally guaranteed
by any such Government;
(ii) “unencumbered approved securities” includes the approved securities

lodged by the non-banking financial company with another institution for
an advance or any other arrangement to the extent to which such securities
have not been drawn against or availed of or encumbered in any manner;
(iii) “quarter” means the period of three months ending on the last day of
March, June, September or December.
45- IC. Reserve fund.
(1) Every non-banking financial company shall create a reserve fund and transfer
therein a sum not less than twenty per cent of its net profit every year as disclosed
in the profit and loss account and before any dividend is declared.
(2) No appropriation of any sum from the reserve fund shall be made by the non-
banking financial company except for the purpose as may be specified by the
Bank from time to time and every such appropriation shall be reported to the
Bank within twenty-one days from the date of such withdrawal:
Provided that the Bank may, in any particular case and for sufficient cause
being shown, extend the period of twenty-one days by such further period as it
thinks fit or condone any delay in making such report.
(3) Notwithstanding anything contained in sub-section (1), the Central

Government may, on the recommendation of the Bank and having regard to the
adequacy of the paid-up capital and reserves of a non-banking financial company
in relation to its deposit liabilities, declare by order in writing that the provisions
of sub-section (1) shall not be applicable to the non-banking financial company
for such period as may be specified in the order:
Provided that no such order shall be made unless the amount in the reserve
fund under sub-section (1) together with the amount in the share premium
account is not less than the paid-up capital of the non-banking financial
company.]
1
[45-ID. Power of Bank to remove directors from office.
(1) Where the Bank is satisfied that in the public interest or to prevent the affairs
of a non-banking financial company being conducted in a manner detrimental to
the interest of the depositors or creditors, or financial stability or for securing the
proper management of such company, it is necessary so to do, the Bank may, by
order and for reasons to be recorded in writing, remove from office, a director (by
whatever name called) of such company, other than Government owned non-
banking financial company with effect from such date as may be specified in the
said order.
(2) No order under sub-section (1) shall be made unless the director concerned
has been given a reasonable opportunity of making a representation to the Bank
against the proposed order:
Provided that if, in the opinion of the Bank, any delay will be detrimental
to the interest of the said company or its depositors, the Bank may, at the
time of giving the aforesaid opportunity or at any time thereafter, by order
direct that, pending the consideration of the representation, if any, the
director, shall not, with effect from the date of such order––
(a) act as such director of that company;
(b) in any way, whether directly or indirectly, be concerned with or

take part in the management of that company.
(3) Where any order is made in respect of a director of a company under sub-
section (1), he shall cease to be a director of that non-banking financial company
and shall not, in any way, whether directly or indirectly, be concerned with, or
take part in the management of any non-banking financial company for such
period not exceeding five years at a time as may be specified in the order.
(4) Where an order under sub-section (1) has been made, the Bank may, by order
in writing, appoint a suitable person in place of the director, who has been so
removed from his office, with effect from such date as may be specified in such
order.
(5) Any person appointed under sub-section (4) shall,—
(a) hold office during the pleasure of the Bank and subject thereto for
a period not exceeding three years or such further periods not
exceeding three years at a time;
1
Ins. by Act 23 of 2019, s. 138 (w.e.f. 9-8-2019)
(b) not incur any obligation or liability by reason only of his being a
director for anything done or omitted to be done in good faith in
the execution of the duties of his office or in relation thereto.
(6) Notwithstanding anything contained in any other law for the time being in
force or in any contract, memorandum or articles of association, on the removal of
a director from office under this section, such director shall not be entitled to
claim any compensation for the loss or termination from office.
45- IE. Supersession of Board of directors of non-banking financial company

(other than Government Company)
(1) Where the Bank is satisfied that in the public interest or to prevent the
affairs of a non-banking financial company being conducted in a manner
detrimental to the interest of the depositors or creditors, or of the non-banking
financial company (other than Government Company), or for securing the proper
management of such company or for financial stability, it is necessary so to do,
the Bank may, for reasons to be recorded in writing, by order, supersede the
Board of Directors of such company for a period not exceeding five years as may
be specified in the order, which may be extended from time to time, so, however,
that the total period shall not exceed five years.
(2) The Bank may, on supersession of the Board of Directors of the non-banking
financial company under sub-section (1), appoint a suitable person as the
Administrator for such period as it may determine.
(3) The Bank may issue such directions to the Administrator as it may deem
appropriate and the Administrator shall be bound to follow such directions.
(4) Upon making the order of supersession of the Board of Directors of a non-
banking financial company,––
(a) the chairman, managing director and other directors shall from the date
of supersession of the Board of Directors vacate their offices;
(b) all the powers, functions and duties, which may, by or under the
provisions of this Act or any other law for the time being in force, be
exercised and discharged by or on behalf of the Board of Directors of
such non-banking financial company or by a resolution passed in
general meeting of such non-banking financial company, shall, until
the Board of Directors of such company is reconstituted, be exercised
and discharged by the Administrator referred to in sub-section (2).
(5) (a) The Bank may constitute a committee consisting of three or more
members who have experience in law, finance, banking, administration or
accountancy to assist the Administrator in discharge of his duties.
(b) The committee shall meet at such times and places and observe such
rules of procedure as may be specified by the Bank.
(6) The salary and allowances payable to the Administrator and the members of
the committee constituted by the Bank shall be such as may be specified by the
Bank and be paid by the concerned non-banking financial company.
(7) On or before the expiration of the period of supersession of the Board of

Directors as specified in the order issued under sub-section (1), the Administrator
of the non-banking financial company shall facilitate reconstitution of the Board
of Directors of the non-banking financial company.
force or in any contract, no person shall be entitled to claim any compensation for
the loss or termination of his office.
(9) The Administrator referred to in sub-section (2) shall vacate office

immediately after the Board of Directors of the non-banking financial company
has been reconstituted.]
45J. Bank to regulate or prohibit issue of prospectus or advertisement soliciting

deposits of money.
The Bank may, if it considers necessary in the public interest so to do, by general
or special order, –
(a) regulate or prohibit the issue by any non-banking institution of any

prospectus or advertisement soliciting deposits of money from the public; and
(b) specify the conditions subject to which any such prospectus or

advertisement, if not prohibited, may be issued.
1
[45JA. Power of Bank to determine policy and issue directions.
(1) If the Bank is satisfied that, in the public interest or to regulate the financial
system of the country to its advantage or to prevent the affairs of any non-banking
financial company being conducted in a manner detrimental to the interest of the
depositors or in a manner prejudicial to the interest of the non-banking financial
company, it is necessary or expedient so to do, it may determine the policy and
give directions to all or any of the non-banking financial companies relating to
income recognition, accounting standards, making of proper provision for bad and
1
Ins. by Act 23 of 1997 s. 4 (w.e.f. 9-1-1997).
doubtful debts, capital adequacy based on risk weights for assets and credit
conversion factors for off-balance-sheet items and also relating to deployment of
funds by a non-banking financial company or a class of non-banking financial
companies or non-banking financial companies generally, as the case may be, and
such non-banking financial companies shall be bound to follow the policy so
determined and the directions so issued.
(2) Without prejudice to the generality of the powers vested under sub-section (1),
the Bank may give directions to non-banking financial companies generally or to
a class of non-banking financial companies or to any non-banking financial
company in particular as to–,
(a) the purpose for which advances, or other fund based or non-fund-based
accommodation may not be made; and
(b) the maximum amount of advances or other financial accommodation or

investment in shares and other securities which, having regard to the paid-up
capital, reserves and deposits of the non-banking financial company and other
relevant considerations, may be made by that non-banking financial company
to any person or a company or to a group of companies].
45K. Power of Bank to collect information from non-banking institutions as to

deposits and to give directions.
(1) The Bank may at any time direct that every non-banking institution shall
furnish to the Bank, in such form, at such intervals and within such time, such
statements, information or particulars relating to or connected with deposits
received by the non-banking institution, as may be specified by the Bank by
general or special order.
(2) Without prejudice to the generality of the power vested in the Bank under sub-
section (1), the statements, information or particulars to be furnished under sub-
section (1) may relate to all or any of the following matters, namely, the amount
of the deposits, the purposes and periods for which, and the rates of interest and
other terms and conditions on which, they are received.
(3) The Bank may, if it considers necessary in the public interest so to do, give
directions to non-banking institutions either generally or to any non-banking
institution or group of non-banking institutions in particular, in respect of any
matters relating to or connected with the receipt of deposits, including the rates of
interest payable on such deposits, and the periods for which deposits may be
received.
(4) If any non-banking institution fails to comply with any direction given by the
Bank under sub-section (3), the Bank may prohibit the acceptance of deposits by
that non-banking institution.
1
[* * * * *]
(6) Every non-banking institution receiving deposits shall, if so required by the

Bank and within such time as the Bank may specify, cause to be sent at the cost of
the non-banking institution a copy of its annual balance sheet and profit and loss
account or other annual accounts to every person from whom the non-banking
institution holds, as on the last day of the year to which the accounts relate,
deposits higher than such sum as may be specified by the Bank.
45L. Power of Bank to call for information from financial institutions and to
give directions.
(1) If the Bank is satisfied that for the purpose of enabling it to regulate the credit
system of the country to its advantage it is necessary so to do; it may–
(a) require financial institutions either generally or any group of financial

institutions or financial institution in particular, to furnish to the Bank in such
form, at such intervals and within such time, such statements, information or
particulars relating to the business of such financial institutions or institution,
as may be specified by the Bank by general or special order.
(b) give to such institutions either generally or to any such institution in

particular, directions relating to the conduct of business by them or by it as
financial institutions or institution.
(2) Without prejudice to the generality of the power vested in the Bank under
clause (a) of sub-section (1), the statements, information or particulars to be
furnished by a financial institution may relate to all or any of the following
matters, namely, the paid-up capital, reserves or other liabilities, the investments
whether in Government securities or otherwise, the persons to whom, and the
purposes and periods for which, finance is provided and the terms and conditions,
including the rates of interest, on which it is provided.
(3) In issuing directions to any financial institution under clause (b) of sub-section
(1), the Bank shall have due regard to the conditions in which, and the objects for
which, the institution has been established, its statutory responsibilities, if any,
and the effect the business of such financial institution is likely to have on trends
in the money and capital markets.
1
Sub-section (5) omitted by Act 51 of 1974, s. 18.
45M. Duty of non-banking institutions to furnish statements, etc., required by Bank.
It shall be the duty of every non-banking institution to furnish the statements,

information or particulars called for, and to comply with any direction given to it,
under the provisions of this Chapter.
1
[45MA. Powers and duties of auditors.
(1) It shall be the duty of an auditor of a non-banking institution to inquire

whether or not the non-banking institution has furnished to the Bank such
statements, information or particulars relating to or connected with deposits
received by it, as are required to be furnished under this Chapter, and the auditor
shall, except where he is satisfied on such inquiry that the non-banking institution
has furnished such statements, information or particulars, make a report to the
Bank giving the aggregate amount of such deposits held by the non-banking
institution;
2
[(1A) The Bank may, on being satisfied that it is necessary so to do, in the public
interest or in the interest of the depositors or for the purpose of proper assessment
of the books of account, issue directions to any non-banking financial company or
any class of non-banking financial companies or non-banking financial companies
generally or to the auditors of such non-banking financial company or companies
relating to balance-sheet, profit and loss account, disclosure of liabilities in the
books of account or any matter relating thereto;]
(2) Where, in the case of 3[a non-banking financial company] the auditor has
made, or intends to make, a report to the Bank under sub-section (1), he shall
include in his report under sub-section (2) of section 227 of the Companies Act,
1956, the contents of the report which he has made, or intends to make to the
Bank.]
4
[(3) Where the Bank is of the opinion that it is necessary so to do in the public
interest or in the interest of the non-banking financial company or in the interest
of the depositors of such company, it may at any time by order direct that a
special audit of the accounts of the non-banking financial company in relation to
any such transaction or class of transactions or for such period or periods, as may
be specified in the order, shall be conducted and the Bank may appoint an auditor
or auditors to conduct such special audit and direct the auditor or the auditors to
submit the report to it.
1
Ins. by s. 19 of Act 51 of 1974.
2
Ins. by s. 5 of Act 23 of 1997 (w.e.f. 9-1-1997).
3
Subs. by Act 23 of 1997 s. 5 for words “a non-banking institution, being a company” (w.e.f. 9-1-1997).
4
Ins. by Act 23 of 1997 s.5 (w.e.f. 9-1-1997)
(4) The remuneration of the auditors as may be fixed by the Bank, having regard
to the nature and volume of work involved in the audit and the expenses of or
incidental to the audit, shall be borne by the non-banking financial company so
audited.]
1
[45MAA. Power to take action against auditors
Where any auditor fails to comply with any direction given or order made by the
Bank under section 45MA, the Bank, may, if satisfied, remove or debar the
auditor from exercising the duties as auditor of any of the Bank regulated entities
for a maximum period of three years, at a time.]
2
[45MB. Power of Bank to prohibit acceptance of deposit and alienation of assets.
(1) If any non-banking financial company violates the provisions of any section or
fails to comply with any direction or order given by the Bank under any of the
provisions of this Chapter, the Bank may prohibit the non-banking financial
company from accepting any deposit.
(2) Notwithstanding anything to the contrary contained in any agreement or

instrument or any law for the time being in force, the Bank, on being satisfied that
it is necessary so to do in the public interest or in the interest of the depositors,
may direct, the non-banking financial company against which an order prohibiting
from accepting deposit has been issued, not to sell, transfer, create charge or
mortgage or deal in any manner with its property and assets without prior written
permission of the Bank for such period not exceeding six months from the date of
the order.
3
[45MBA. Resolution of non-banking financial company
(1) Without prejudice to any other provision of this Act or any other law for the
time being in force, the Bank may, if it is satisfied, upon an inspection of the
Books of a non-banking financial company that it is in the public interest or in the
interest of financial stability so to do for enabling the continuance of the activities
critical to the functioning of the financial system, frame schemes which may
provide for any one or more of the following, namely:––
(a) amalgamation with any other non-banking institution;
(b) reconstruction of the non-banking financial company;

1
2
Ins. by Act 23 of 2019, s. 139 (w.e.f. 9-8-2019)
Ins. by Act 23 of 1997 s.6 (w.e.f. 9-1-1997)
3
Ins. by Act 23 of 2019, s. 140 (w.e.f. 9-8-2019)
(c) splitting the non-banking financial company into different units or
institutions and vesting viable and non-viable businesses in separate
units or institutions to preserve the continuity of the activities of that
non-banking financial company that are critical to the functioning of
the financial system and for such purpose establish institutions called
“Bridge Institutions”.
Explanation.––For the purposes of this sub-section, “Bridge Institutions”

mean temporary institutional arrangement made under the scheme referred
to in this sub-section, to preserve the continuity of the activities of a non-
banking financial company that are critical to the functioning of the
financial system.
(2) Without prejudice to the generality of the foregoing provisions, the scheme
referred to in sub-section (1) may provide for––
(a) reduction of the pay and allowances of the chief executive officer,
managing director, chairman or any officer in the senior management of
the non-banking financial company;
(b) cancellation of all or some of the shares of the non-banking financial

company held by the chief executive officer, managing director, chairman
or any officer in the senior management of the non-banking financial
company or their relatives;
(c) sale of any of the assets of the non-banking financial company.
(3) The chief executive officer, managing director, chairman or any officer in the
senior management of the non-banking financial company whose pay and
allowances are reduced or the shareholders whose shares are cancelled under the
scheme shall not be entitled to any compensation]
45MC. Power of Bank to file winding up petition.
(1) The Bank, on being satisfied that a non-banking financial company, –
(a) is unable to pay its debt; or
(b) has by virtue of the provisions of section 45-IA become disqualified to

carry on the business of a non-banking financial institution; or
(c) has been prohibited by the Bank from receiving deposit by an order and
such order has been in force for a period of not less than three months; or
(d) the continuance of the non-banking financial company is detrimental to the
public interest or to the interest of the depositors of the company, may file an
application for winding up of such non-banking financial company under the
Companies Act, 1956.
(2) A non-banking financial company shall be deemed to be unable to pay its debt
if it has refused or has failed to meet within five working days any lawful demand
made at any of its offices or branches and the Bank certifies in writing that such
company is unable to pay its debt.
(3) A copy of every application made by the Bank under sub-section (1) shall be
sent to the Registrar of Companies.
(4) All the provisions of the Companies Act, 1956 relating to winding up of a
company shall apply to a winding up proceeding initiated on the application made
by the Bank under this provision.]
45N. Inspection.
1
[(1) The Bank may, at any time, cause an inspection to be made by one or more
of its officers or employees or other persons (hereafter in this section referred to
as the inspecting authority)-
(i) of any non-banking institution, including a financial institution, for the

purpose of verifying the correctness or completeness of any statement,
information or particulars furnished to the Bank or for the purpose of
obtaining any information or particulars which the non-banking institution has
failed to furnish on being called upon to do so; or
(ii) of any non-banking institution being a financial institution, if the Bank

considers it necessary or expedient to inspect that institution.]
(2) It shall be the duty of every director or member of any committee or other
body for the time being vested with the management of the affairs of the non-
banking institution or other officer or employee thereof to produce to the
inspecting authority all such books, accounts and other documents in his custody
or power and to furnish that authority with any statements and information
relating to the business of the institution as that authority may require of him,
within such time as may be specified by that authority.
(3) The inspecting authority may examine on oath any director or member of any
committee or body for the time being vested with the management of the affairs
of the non-banking institution or other officer or employee thereof, in relation to
its business and may administer an oath accordingly.
1
Subs. by Act 51 of 1974, s.20, for sub-section (1).
1
[45NA. Deposits not to be solicited by unauthorised person.
No person shall solicit on behalf of any non-banking institution either by

publishing or causing to be published any prospectus or advertisement or in any
other manner deposits of money from the public unless-
(a) he has been authorised in writing by the said non-banking institution to do

so and specifies the name of the institution which has so authorised him, and
(b) the prospectus or advertisement complies with any order made by the
Bank under section 45J and with any other provision of law for the time being
in force, applicable to the publication of such prospectus or advertisement.]
2
[45NAA. Power in respect of group companies
(1) The Bank may, at any time, direct a non-banking financial company to annex
to its financial statements or furnish separately, within such time and at such
intervals as may be specified by the Bank, such statements and information
relating to the business or affairs of any group company of the non-banking
financial company as the Bank may consider necessary or expedient to obtain for
the purposes of this Act.
(2) Notwithstanding anything to the contrary contained in the Companies Act,

2013, the Bank may, at any time, cause an inspection or audit to be made of any
group company of a non-banking financial company and its books of account.
Explanation.––For the purposes of this section,––
(a) “group company” shall mean an arrangement involving two or more

entities related to each other through any of the following relationships,
namely:—
(i) subsidiary—parent (as may be notified by the Bank in

accordance with Accounting Standards);
(ii) joint venture (as may be notified by the Bank in accordance

with Accounting Standards);
(iii) associate (as may be notified by the Bank in accordance with

Accounting Standards);
1
Ins. by s.21 of Act 51 of 1974.
2
Ins. by Act 23 of 2019, s. 141 (w.e.f. 9-8-2019)
(iv) promoter-promotee (under the Securities and Exchange Board
of India Act, 1992 or the rules or regulations made thereunder for
listed companies);
(v) related party;
(vi) common brand name (that is usage of a registered brand name

of an entity by another entity for business purposes); and
(vii) investment in equity shares of twenty per cent. and above in

the entity;
(b) “Accounting Standards” means the Accounting Standards notified by

the Central Government under section 133, read with section 469 of the
Companies Act, 2013 and sub-section (1) of section 210A of the
Companies Act, 1956.]
1
[45NB. Disclosure of information.
(1) Any information relating to a non-banking financial company, -
(i) contained in any statement or return submitted by such company under the
provisions of this Chapter; or
(ii) obtained through audit or inspection or otherwise by the Bank,
shall be treated as confidential and shall not, except otherwise provided in this
section, be disclosed.
(2) Nothing in this section shall apply to-
(a) the disclosure by any non-banking financial company, with the previous
permission of the Bank, of any information furnished to the Bank under sub-
section (1);
(b) the publication by the Bank, if it considers necessary in the public interest
so to do, of any information collected by it under sub-section (1) in such
consolidated form as it may think fit without disclosing the name of any non-
banking financial company or its borrowers;
(c) the disclosure or publication by the non-banking financial company or by

the Bank of any such information to any other non-banking financial company
or in accordance with the practice and usage customary amongst such
companies or as permitted or required under any other law:
1
Ins. by S.7 of Act 23 of 1997 (w.e.f. 9-1-1997).
Provided that any such information received by a non-banking financial
company under this clause shall not be published except in accordance
with the practice and usage customary amongst companies or as permitted
or required under any other law.
(3) Notwithstanding anything contained in this Act or in any other law for the
time being in force, the Bank, if it is satisfied that, in the public interest or in the
interest of the depositors or the non-banking financial company or to prevent the
affairs of any non-banking financial company being conducted in a manner
detrimental to the interest of the depositors, it is expedient so to do, may, either on
its own motion or on being requested, furnish or communicate any information
relating to the conduct of business by any non-banking financial company to any
authority constituted under any law.
(4) Notwithstanding anything contained in any law for the time being in force, no
court or tribunal or other authority shall compel the Bank to produce or to give
inspection of any statement or other material obtained by the Bank under any
provisions of this chapter.]
1
[45NC. Power of Bank to exempt.
The Bank, on being satisfied that it is necessary so to do, may declare by

notification in the Official Gazette that any or all of the provisions of this Chapter
shall not apply to a non-banking institution or a class of non-banking institutions
or a non-banking financial company or to any class or non-banking financial
companies either generally or for such period as may be specified, subject to such
conditions, limitations or restrictions as it may think fit to impose.]
45O. [Penalties.]
[Rep. by the Reserve Bank of India (Amendment) Act, 1974, (51 of 1974).
section 22 (w.e.f. 13-12-1974).]
45P. [Cognizance of offence.]
[Rep. by the Reserve Bank of India (Amendment) Act, 1974, section22 (w.e.f.
13-12-1974).]
45Q. Chapter IIIB to override other laws.
The provisions of this Chapter shall have effect notwithstanding anything

inconsistent therewith contained in any other law for the time being in force or
any instrument having effect by virtue of any such law.]
2
[45QA. Power of Company Law Board to offer repayment of deposit.
1
Ins. by Act 23 of 1997, section 7 (w.e.f. 9-1-1997).
2
Ins. by Act 23 of 1997, section 8 (w.e.f. 9-1-1997).
(1) Every deposit accepted by a non-banking financial company, unless renewed,
shall be repaid in accordance with the terms and condition of such deposit.
(2) Where a non-banking financial company has failed to repay and deposit or
part thereof in accordance with the terms and conditions of such deposit, the
Company Law Board constituted under section 10E of the Companies Act, 1956
(1 of 1956), may, if it is satisfied, either on its own motion or on an application of
the depositor, that it is necessary so to do to safeguard the interests of the
company, the depositors or in the public interest, direct, by order, the non-banking
financial company to make repayment of such deposit or part thereof forthwith or
within such time and subject to such conditions as may be specified in the order:
Provided that the Company Law Board may, before making any order under
this sub-section, give a reasonable opportunity of being heard to the non-
banking financial company and the other persons interested in the matter.]
1
[45QB. Nomination by depositors.
(1) Where a deposit is held by a non-banking financial institution to the credit of

one or more persons, the depositor or, as the case may be, all the depositors
together may nominate, in the manner prescribed by rules made by the Central
Government under section 45ZA of the Banking Regulation Act, 1949 (10 of
1949), one person to whom in the event of the death of the sole depositor or the
death of all the depositors, the amount of deposit may be returned by the non-
banking financial institution.
force, or in any disposition, whether testamentary or otherwise, in respect of such
deposit, where a nomination made purports to confer on any person the right to
receive the amount of deposit from the non-banking financial institution, the
nominee shall, on the death of the sole depositor or, as the case may be, on the
death of all the depositors, become entitled to all the rights of the sole depositor
or, as the case may be, of the depositors, in relation to such deposit to the
exclusion of all other persons, unless the nomination is varied or cancelled in the
manner prescribed by rules made by the Central Government under section 45ZA
of the Banking Regulation Act, 1949 (10 of 1949).
(3) Where the nominee is a minor, it shall be lawful for the depositor making the
nomination to appoint, in the manner prescribed by rules made by the Central
Government under section 45ZA of the Banking Regulation Act, 1949 (10 of
1949), any person to receive the amount of deposit in the event of his death during
the minority of the nominee.
1
Inserted by Act 23 of 1997, section 8 (w.e.f. 9-1-1997).
(4) Payment by a non-banking institution in accordance with the provisions of this
section shall constitute a full discharge to the non-banking institution of its
liability in respect of the deposit:
Provided that nothing contained in this sub-section shall affect the right or
claim which any person may have against the person to whom any
payment is made under this section.
(5) No notice of the claim of any person, other than the person or persons in
whose name a deposit is held by a non-banking institution, shall be receivable by
the non-banking institution, nor shall the non-banking institution be bound by any
such notice even though expressly given to it:
Provided that where any decree order, certificate or other authority from a
court of competent jurisdiction relating to such deposit is produced before
a non-banking institution, the non-banking institution shall take due note
of such decree, order, certificate or other authority.]
72

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UNIT-1

INCORPORATION, 1[CAPITAL], MANAGEMENT AND BUSINESS

1. Establishment and incorporation of Reserve Bank.

The capital of the Bank shall be five crores of rupees.]

5. [Increase and reduction of share capital.]

[Rep. by Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949)].

6. Offices, branches and agencies.

8. Composition of the Central Board, and term of office of Directors.

(c) 7[ten] Directors to be nominated by the Central Government; and

(d) 8[two Government officials] to be nominated by the Central Government;]

(7) A retiring Director shall be eligible for re-nomination.]

10. Disqualifications of Directors and members of Local Boards.

(1) No person may be a Director or a member of a Local Board who -

(a) is a salaried Government official 7[* * *] 8[* * *], or

(c) is found lunatic or becomes of unsound mind, or

(d) is an officer or employee of any bank, or

11. Removal from and vacation of office.

(5) The 1[* * *] nomination 2[* * *] as Director or member of a Local Board of

12. Casual Vacancies and absences

(1) If the Governor or a Deputy Governor by infirmity or otherwise is rendered

13. Meetings of the Central Board.

[Rep. by the Act 62 of 1948, s.7 and Sch. (w.e.f. 1-1-1949).]

17. Business which the Bank may transact.

(ii) in any other case, within ninety days,

from the date of such purchase or rediscount:

Provided that the borrowing bank furnishes a declaration in writing, to the

(b) gold or silver or documents of title to the same;

(a) repayable on demand or on the expiry of fixed periods not exceeding

(a) repayable on demand or on the expiry of fixed periods not exceeding

Provided that the amount of loans and advances granted to a financial

(i) repayable on demand or on the expiry of a fixed period not exceeding

(a) repayable on demand or on the expiry of fixed periods not exceeding

(a) repayable on demand or on the expiry of fixed periods not exceeding

(a) repayable on demand or on the expiry of a fixed period not exceeding

(a) repayable on demand or on the expiry of a fixed period not exceeding

(5) the making to the 3[Central Government] 4[5[* * *] 6[and 7[State

Explanation. -- For the purposes of this clause, "derivative" means an

(a) interest rate,

(b) price of securities of the Central Government or a State Government or of

(c) price of foreign securities,

(d) foreign exchange rate,

(e) index of rates or prices,

(f) credit rating or credit index,

(g) price of gold or silver coins, or gold or silver bullion, or

(h) any other variable of similar nature];

Provided that securities fully guaranteed as to principal and interest by 8[any

(c) the collection of the proceeds, whether principal, interest or dividends, of

(e) the management of public debt;

Provided that in the case of securities of an institution or body corporate, the

(12AB) dealing in repo or reverse repo:

Provided that lending or borrowing of funds by way of repo or reverse repo

Explanation. -- For the purposes of this clause,--

(a) "repo" means an instrument for borrowing funds by selling securities of

(b) "reverse repo" means an instrument for lending funds by purchasing

18. Power of direct discount.

(a) a State co-operative bank, or

(b) on the recommendation of a State co-operative bank, to a co-operative

(c) any other person,

(a) is a salaried Government official 7[* * ] 8[ * *], or

(5) The 1[* * ] nomination 2[ * *] as Director or member of a Local Board of