RBI ACT -1934

SEC-2 (e) SCHEDULED BANK: As per this section, a Scheduled bank

means a bank whose name is included in the 2nd schedule of RBI Act
1934. The essential condition of capital is that, such banks have paid-
up capital and reserves of not less than Rs. 5 lac. Bank which are not
included in the 2nd Schedule of RBI are called Non-scheduled Bank.
SEC. 17 TYPES OF BUSINESS: Defines various types of business which
RBI may transact, which include acceptance of deposit without interest
from Central / State govt. purchase sale of forex, securities,
rediscounting the bills, P/N, grant loans etc.
SEC. 21 - RIGHT TO TRANSACT GOVT. BUSINESS: RBI to transact Govt.
business in India is. Remittance, exchange, keeping deposit free of
interest etc.
SEC. 22. BANK NOTES: Sole right to issue bank notes
SEC. 23 ISSUE DEPARTMENT Bank rotes shall be issued by Issue Dept.
against security of gold coins, bullion, rupee coins, foreign securities &
other approved securities up to Rs. 200 cr.
SEC. 24 DENOMINATION OF NOTES RBI issues all currency notes for
denomination of 2, 5,10,20,50,100, 200, 500,1000,2000, 5000,10000
SEC 28 - RULES FOR REFUNDING VALUE: RBI can frame rules for
refunding value of mutilated, soiled or imperfect notes as a matter of
grate.
SEC 29 – Bank Notes Exempted from Stamp Duty under Indian Stamp
Act
SEC 31 - PROHIBITS ISSUE OF BEARER B/E, P/N PAYABLE TO BEARER:
no person in India other than RBI or the Central Govt. is authorized to
draw, accept make or issue any bill of exchange, hundi, Promissory
note, drafts payable to bearer.

SEC 33 ASSETS OF THE ISSUE DEPARTMENT: The assets of issue deptt.

consists of gold coins, gold bullion, foreign securities etc. The aggregate
value of gold coins, gold bullion, and foreign securities held as assets
and the aggregate value of the gold coins, and gold bullion shall not at
any time be less than Rs 200 cr. and Rs 115 cr. respectively
SEC 42(1) - CASH RESERVE RATIO (CRR): Consequent to GOl's
notification of Sec. of RBI (Amendment) Act 2006 minimum statutory
floor and ceiling limit no longer exists. Further, no interest will be
payable on CRR balances w.e.f. fortnight beginning 31 March 2007.
CRR is maintained on fortnightly basis: Saturday to following Friday 14
days.
SEC.45-A-F COLLECTING & FURNISHING OF CREDIT INFORMATION:

Borrower enjoying secured credit limits of Rs. 10 lac and above

unsecured limits of Rs. 5 lac & above: Return as on last Friday of April
and Oct. every year. (Half yearly).

Doubtful, loss and suit filed accounts with aggregate of outstanding Rs.
100 lac and above: Half-yearly March and September.

Basic Statistical Return (BSR): BSR-1 regarding borrower a/cs of above

Rs. 2 lac. BSR-Il containing information about deposits with break-up
into current, savings & term deposits.
SEC. 45-H-T: Regulations relating NBFC
SEC 49 - PUBLICATION (DECLARATION OF BANK RATE)
RBI shall make public from time to time the standard rate at which it is
prepared to buy or re-discount B/E or other commercial paper eligible
for purchase under this Act.
 BANKING REGULATION ACT 1949

SEC. 5(A) APPROVED SECURITIES: Such securities authorized by the

Central Govt. or securities in which a trustee may invest money trust
under Indian Trust Act 1882.
SEC 5 (B) : BANKING: Acceptance of deposit for the purpose of
lending or investment, the deposits of money from the public
repayable on demand or otherwise, and withdrawal by cheque, draft
order or otherwise.
SEC 7: USE OF WORDS - BANK, BANKER, BANKING OR BANKING
COMPANY: A Banking Co carrying on banking business in India must
use the word 'bank', 'banker', 'banking company in its name. No other
organisation permitted to use these names.
SEC 9: DISPOSAL OF NON-BANKING ASSETS: No bank shall hold any
immovable property howsoever acquired except for its own use for
any period exceeding 7 years.
SEC 10: EMPLOYMENT OF MANAGING AGENTS The period of office
of an MD, whole time chairman cannot exceed 5 years at a time (may
be renewed or extended by further periods not exceeding 5 years on
each occasion).
SEC 11: PAID UP CAPITAL AND RESERVE REQUIREMENT DOMESTIC
BANKS Minimum Paid up Capital and Reserves Rs 5 lac.
FOREIGN BANKS Minimum Rs 15 Lac and Rs 20 Lac where bank has
place of business in Bombay, or Calcutta of both).
SEC 12: CAPITAL STRUCTURE The ratio of authorised, subscribed and
paid-up capital must be minimum 4:2:1.
SEC 13 RESTRICTION ON COMMISSION, BROKERAGE DISCOUNT:
Bank not to pay commission, brokerage, discount, etc. more than
2.5% of the paid-up-value of one share.
SEC 17(1): RESERVE FUND: Stipulates that a bank must create reserve
fund equivalent to not less than 20% of profits out of the balance of
profit of each year, before any dividend is declared (RBI has enhanced
it to 25% of net profit w.e.f. 31 March 2001).
SEC 19 (2): No banking company shall hold shares in any company
whether as pledgee, mortgagee or absolute owner of an amount
exceeding 30% of paid up share capital of that company or 30% of its
own paid-up capital and reserves, whichever is less.
SEC 21: Control Over Advances by RBI
SEC 20: RESTRICTION ON ADVANCES AGAINST OWN SHARES: No
Banking Co grant loans / advances on the security of its own shares.
SEC 21(A): RATE OF INTEREST CHARGED BY BANKS NOT TO BE
SUBJECT TO SCRUTINY BY COURTS: A transaction between the
banking company and its debtor shall not be reopened by any court
on the ground of excessive charging of rate of interest.
SEC 22: obtaining of license from RBI to open a bank is essential.
SEC 23: RESTRICTION ON OPENING OF NEW AND TRANSFER OF
EXISTING PLACE OF BUSINESS: Prior permission of RBI is required for
opening of new branch, sub-office, sub pay office, and extension
counter etc. except for one month.
SEC 24: MAINTENANCE OF SLR: A Banking company is required to
maintain at the close of business on any day a certain percentage of
its total Net demand and time liabilities in India in form of cash, gold
and unencumbered approved securities with reference to Total Net
Demand and Time Liabilities as on last Friday of the second preceding
fortnight. Min. Floor limit abolished and Maximum maintained.
SEC 26: RETURN OF UNCLAIMED DEPOSITS:

Every Bank shall within 30 days after the close of each calendar year
submit a return to RBI on all deposit a/cs which have not been
operated upon for 10 years (unclaimed accounts in case of FDR, this
period will start from due date i.e. date of expiry of such fixed period.
The RBI has launched the Depositor Education and Awareness Fund
(the Fund) Scheme 2014 DEAF), under which the amount to the credit
of any a/c in India with any bank which has not been operated upon
for a period of ten years or any deposit or any amount remaining
unclaimed for more than ten years, shall be credited to the Fund,
within a period of three months from the expiry of the period of ten
years.
SEC 29: ACCOUNTS & BALANCE SHEET: Balance sheet and P&L a/c
must be prepared as on last working day of March every year in
format given in Schedule Iii of the Act.
SEC 31: SUBMISSION OF RETURNS. A/cs and B/s together with the
auditor’s report shall be published in the prescribed manner and 3 of
the same shall be furnished to RBI within 3 months from the end of
the period to which the B/S pertains.
SEC 35: INSPECTION: Empowers RBI to undertake inspection of banks.

SEC 35 (A): RBI has been given powers to give directions to the banks
in the public interest or in the interest of banking policy.
SEC 36 (AA) : POWERS TO REMOVE MANAGERIAL OR OTHER
PERSONS: Where the RBI is satisfied that in the public interest, RBI
may remove from office any Chairman, Director or other officers or
employees of the banking company,
SEC 44 (A): AMALGAMATION OF BANKING COMPANIES: Terms of
amalgamation shall first be approved by general body by 2/3"
majority in value and then by RBI.
SEC 45(Y): PRESERVATION OF BANK RECORDS: Central Govt in
consultation with RBI has power to frame rules regarding
preservation of books, a/cs and other documents.
SEC 45 Z: RETURNS OF PAID INSTRUMENTS TO CUSTOMER
Guidelines for returning the paid instruments to customer by keeping
a true copy.
SEC 45 ZA: NOMINATION: For nomination in Deposit accounts.
SEC 45 ZC: NOMINATION: For nomination in Safe Custody accounts.
SEC 45 ZE: NOMINATION: For nomination in Locker accounts.
SEC 46: PENALTIES: Whoever in any return, B/s or other documents
willfully makes a statement which is false, or willfully omits to make a
material statement, shall be punishable with imprisonment up to 3
years and shall also be liable to fine.
SEC 47-A: VIOLATION OF KYC RBI to impose penalty on banks for
violation of KYC norms or non-reporting of frauds

PAYMENT & COLLECTION OF CHEQUES

TYPES OF NEGOTIABLE INSTRUMENTS: Sec 13 defines only three types
of Negotiable Instruments i.e.
Promissory Note, bill of exchange and Cheque payable either to order or
to bearer
NEGOTIABLE INSTRUMENT AS PER CUSTOMS & USAGE:
1)pay order/bank 2) Govt P/N 3)Certificate of
cheque deposit
4) Commercial paper 5) treasury bills 6) hundi
7) Bill of lading 8)Railway receipts 9)Dock warrant
10)warehouse receipt 11)Delivery order

The instruments mentioned above from Serial No 7 to 11 are also

documents of title to goods under Sale of Goods Act.

TYPES OF NEGOTIABLE INSTRUMENTS:

PROMISSORY NOTE: (Sec. 4 NI Act).
There are two types of P/N, a. Demand P/N, i.e. payable on Demand
and Usance PIN, Payable after a pre-decided define period,
• Promissory Note required to be stamped as Indian Stamp Act
(except 18%).
• Currency notes though fulfill the number of conditions of P/ N has
been excluded from P/N as per Sec. 4 of NI Act.

BILL OF EXCHANGE (Sec. 5 of NI Act).

A B/E may be a demand are usance. In case of cash sale in the
commercial transactions, normally demand BE are drawn and in case of
credit sales usance bills of exchange are drawn by the seller on the
purchaser

CHEQUE:
Section 6 of NI Act. A Cheque Is a bill of exchange, drawn on a specified
bank and not expressed to be payable otherwise than on demand The
Act covers Electronic Cheque is a cheque which contains the exact
mirror image of a paper cheque, with the use of digital signatures.

DIFFERENT PARTIES
P/N BoE CHEQUE
NO OF PARTIES Two Three Three
DRAWER Debtor/Borrower Creditor /seller Debtor ,A/c
Holder
DRAWEE - Debtor or Bank
buyer
PAYEE Creditor Person Person named
authorized to in the cheque
obtain payment

BASIC FEATURES OF NEGOTIABLE INSTRUMENTS

a) Freely Transferable: By mere Delivery, if payable to bearer (Sec. 47)
and by endorsement and delivery if payable to order (Section 48).
b) Holder in due course gets title free from defects.

DIFFERENCE BETWEEN HOLDER AND HOLDER IN DUE COURSE HOLDER

ITEM HOLDER Sec 8 HOLDER IN DUE
COURSE Sec 9
Consideration Not essential Essential
Actual possession Not essential Essential
Defective title Will affect the Will not affect the
instrument instrument

RIGHTS OF HOLDER
a) Holder can obtain a duplicate of the lost instrument (Section 45-A)
b) Holder can cross the cheque if not already crossed, convert a general
crossing to a special crossing, endorse and can negotiate, if the
negotiation is not restricted
c) Holder can sue in his own name in relation to the instrument
d) Holder can complete an inchoate instrument,
e) Holder can give proper discharge to the person making the payment

RIGHTS OF HOLDER IN DUE COURSE

• Every prior party to a negotiable instrument is liable thereon to a
holder in due course until the instrument is duly satisfied (Sec. 36)
• If a bill is drawn payable to the drawer's order in a fictitious name,
the acceptor is not relieved from liability to any holder in due
course, provided endorsement and the drawer's signatures are in
the same handwriting (Sec. 42)
• If a bill of exchange or promissory note is negotiated to a holder in
due course, the other parties to the instrument cannot escape
liability on the ground that the delivery of the instrument was
conditional or for a special purpose only (Sec. 46)

NEGOTIATION AND ENDORSEMENT

Negotiation: Negotiation means transferring an instrument from one
person to another in such a manner as to convey title and to constitute
the transferee the holder thereof.
Endorsement: (Sec. 15 OF N.I. Act) Endorsement is made for the purpose
of negotiation of a negotiable instrument, by the maker or holder of a
negotiable instrument, by signing on the face or backside of an
instrument or on a slip of paper called 'allonge’.