Bill Summary
The Banking Laws (Amendment) Bill, 2011
The Banking Laws (Amendment) Bill, 2011 was Under the regulations of the Banking Regulations Act,
introduced in the Lok Sabha on March 22, 2011 by the 1949, the RBI has the power to remove a director or any
Minister of Finance, Shri Pranab Mukherjee. other officers of the banking company. The Statement of
The Bill seeks to amend the Banking Regulation Act, Objects and Reasons of the Bill states that such power is
1949, the Banking Companies (Acquisition and Transfer not adequate if the entire Board of Directors is working
of Undertakings) Act, 1970 and the Banking Companies against the interest of the depositors and the company.
(Acquisition and Transfer of Undertakings) Act, 1980. This Bill proposes to confer powers on the RBI to
supersede the Board of Directors of a banking company
The Bill proposes to make the following changes in order
for not more than 12 months and appoint an administrator
to help banking companies raise capital for expansion of
for the managing the company during that period.
the banking business:
The Negotiable Instruments Act, 1881 requires all banking
- It removes the ceiling of Rs 3000 crore on the
companies to maintain a certain amount of cash as reserve
amount of authorized capital nationalised banks must
ratio (CRR) on every alternate Friday of every month. If a
hold. Approval to increase or decrease the authorized
banking company fails to maintain the prescribed
capital has to be taken from the Central Government
minimum amount as CRR on any day, the Bill empowers
and the Reserve Bank of India (RBI).
the RBI to levy penal interest on the defaulter.
- It allows nationalised banks to issue two additional
The existing Competition Act, 2002 has given the power
instruments (bonus shares and rights issue) to enable
to the Competition Commission of India to regulate
them to access the capital market for raising capital.
mergers and acquisitions. The Bill proposes to exempt
The Bill also proposes some changes regarding the voting combinations of banking companies from seeking such
rights of the shareholders of banks: permission as these are regulated by RBI.
- It raises the ceiling on voting rights of shareholders The Banking Regulation Act, 1949 gives a time limit of
of nationalised banks from one percent to ten percent. one year to primary co-operative societies to get a license
- It removes the existing restrictions on voting rights from the RBI to perform banking activities. This Bill
limited to ten percent of the total voting rights of all extends the time period to three years within which a co-
the shareholders of the banking company. operative society can get the license by fulfilling all
To ensure proper control of the banking companies, the requirements to carry on banking business or cease doing
Bill makes the following provisions: so if the license is not granted.
- For persons who wish to acquire five percent or more The Bill proposes to establish a “Depositor Education and
of the share capital of a banking company, it will be Awareness Fund”. The Fund will take over the deposit
mandatory to obtain prior approval from the RBI. accounts which have not been claimed or operated for a
period of ten years or more.
- The RBI will also have the power to impose
conditions while granting approval for acquisition of The Bill also proposes to increase the penalties and fines
the share capital. in certain cases of violation of the Banking Regulation
Act, 1949. Such cases would include failure to furnish
Banking companies engage in various financial activities
important information or willful provision of false
through the medium of associate enterprises. To ensure
information.
better regulation of such activities the Bill confers powers
on the RBI to call for information and returns from such
associate enterprises and also inspect them if required.
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Sana Gangwani July 5, 2011
[email protected] PRS Legislative Research Centre for Policy Research Dharma Marg Chanakyapuri New Delhi – 110021
Tel: (011) 2611 5273-76, Fax: 2687 2746
