(This article outlines the regulatory framework for banking in India, highlighting important provisions under the Banking Regulation Act and the roles banks play in contributing to the financial stability of the country. It provides insights into the constitution, permissible activities, and key restrictions placed on banks to ensure the efficient functioning of the sector within a structured legal framework.)

Introduction

Banking in India is governed by the Banking Regulation (BR) Act and the Reserve Bank of India (RBI) Act, 1934. As per Section 4(1) of the BR Act, the Central Government, upon the recommendation of the RBI, may suspend the operation of certain provisions of the act for a period not exceeding 60 days, through an official notification in the Gazette. Section 4(2) grants the RBI Governor, or the Deputy Governor in his absence, similar powers for suspensions up to 30 days. Such actions must then receive concurrence from the Central Government and be published in the Official Gazette. However, no suspension may extend beyond one year.

Key Sections of the Banking Regulation Act

1. Section 5(b) - Definition of Banking
   Banking is defined as the acceptance of deposits from the public for the purpose of lending or investment, which are repayable on demand or otherwise, and withdrawal can be made via cheque, draft, or other means.
2. Section 5(c) - Definition of a Banking Company
   A banking company is any company that conducts the business of banking in India.

Constitution of Banks

Banks in India are classified into three categories:

1. Body Corporate constituted under special statute
   All public sector banks, including the SBI Group, fall under this category. A public sector bank is defined as one in which the Government of India holds more than 50% of the shareholding.
2. Companies registered under the Companies Act, 1956/2013
   Banks falling under this category are private or foreign banks registered under the Companies Act. Though they are governed by the Companies Act for their constitution, their banking operations are regulated by the BR Act and the RBI Act.
3. Co-operative Societies
   Co-operative banks are governed by state laws unless they operate in more than one state, in which case central laws apply. These banks are listed in the Second Schedule of the RBI Act, and their supervisory functions are overseen by the RBI.

Other Important Sections:

• Section 5(cc) - Definition of Branch
  Defines the branch or branch office of a banking company.
• Section 5(ne) - Definition of Substantial Interest
  Substantial interest is defined in two contexts:
  i) For companies, it refers to beneficial interest held by an individual or their spouse/minor children exceeding ₹5 lakh or 10% of the company's capital, whichever is lower.
  ii) For firms, it refers to beneficial interest held exceeding 10% of the total capital subscribed by all partners.
• Section 6 - Permissible Business for Banks
  This section outlines the range of permissible business activities for banks beyond accepting deposits and lending. These include remittances, foreign currency transactions, bond trading, safe deposit services, and managing property acquired as loan security. Additionally, banks may act as agents for government bodies, establish trusts or associations for employees, and, more recently, conduct insurance business.
• Section 7 - Name of Banking Companies
  This section mandates that companies conducting banking business must include the words "bank," "banking," "banker," or "banking company" in their name. This restriction does not apply to subsidiaries of banking companies.
• Section 8 - Prohibited Activities for Banks
  Banks are prohibited from engaging in trading activities, either directly or indirectly. They cannot barter goods for others, except when selling or bartering goods that have been acquired as loan security.
• Section 9 - Restriction on Holding Immovable Property
  Banks are restricted from acquiring or holding immovable property except for their own use. Any immovable property acquired as loan security must be disposed of within seven years, although this period can be extended up to 12 years with RBI approval.
• Section 10A - Composition of Board of Directors
  The board of directors of a banking company must have at least 50% of its members possessing specialized knowledge or practical experience in areas such as accountancy, agriculture, rural economy, banking, economics, and finance.