Reserve Bank of India Act, 1934: Study Notes

• These are study notes on the Reserve Bank of India Act, 1934

Chapter I: Preliminary

• Short title: The Reserve Bank of India Act, 1934
• Extent: The whole of India
• Commencement details: This section was effective immediately, with the remaining provisions enacted on a date appointed by the Central Government in a Gazette of India notification.
• Definitions covered in the Act: the Bank, Bank for International Settlements, bank note, and the Central Board.

Chapter II: Incorporation, Capital, Management and Business

• Reserve Bank Establishment: Establishes the Reserve Bank of India to manage currency and banking operations.
• Corporate status: The Reserve Bank of India's structure is a body corporate with perpetual succession and a common seal, empowered to sue and be sued under its name.
• Capital details: The capital of the Bank will be five crores of rupees
• Office Locations: Establishes offices in Bombay, Calcutta, Delhi, and Madras, with potential for branches/agencies elsewhere in India, or abroad with Central Government approval.
• Management structure: The Central Government guides the Bank in the public interest after consulting with the Governor.
• Central Board's Role: Entrusted with the superintendence and direction of the Bank's affairs, exercising its powers.
• Governor's Authority: Governs affairs and business, possesses powers, and executes actions, unless otherwise stated in Central Board regulations.
• Central Board Composition: The Central Board consists of a Governor, Deputy Governors (max four), four Directors (nominated by the Central Government from the Local Boards), ten Directors (nominated by the Central Government), and one Government official (nominated by the Central Government
• Governor/Deputy Governor Terms: Selected by the Central Government, serve no more than 5 years, and can be re-appointed.
• Director Terms: Directors nominated under clause (c) of sub-section (1) hold office for four years.
• Local Boards: Consists of five members appointed by the Central Government, representing territorial and economic interests, cooperative and indigenous banks.
• Local Board Term; Four year office term for members, eligible for reappointment, no more than two terms.
• Disqualifications for Directors/Board Members: Salaried Government officials, those declared insolvent, of unsound mind, or officers/employees of any bank.
• Circumstances for Office Removal: The Central Government can remove the Governor, any Director, Deputy Governor, or Local Board member from their positions.
• Grounds for Director/Member Termination: A Director loses their position if they don't get leave for missing 3 meetings, or they are disqualified.
• Board Vacancies: Do not invalidate Board proceedings if there is a defect or vacancy.
• Casual vacancy notes: If there is a casual vacancy in the office of any member, the central board will nominate a person.
• Meetings of the Central Board: Occur at least six times per year, convened by the Governor, with requests for meetings accommodated.

Business the Bank Can Transact (Section 17)

• Deposit acceptance: Accepting deposits without interest and money collection for government, state government, local authorities, banks, and others.
• Bill transactions: Purchasing, selling, and rediscounting bills of exchange and promissory notes from commercial or trade transactions.
• Foreign exchange: Purchasing and selling to scheduled banks, of foreign exchange. Loan provisions: Central Government/State Government loans.
• Issuing remittances: Handling demand drafts, telegraphic transfers, and bank post bills.
• Derivatives dealing: Transaction in derivatives, as approved by the Central Board.
• Rupee coin management: Purchasing, selling and re-issuing rupee coin and securities.
• Agency functions: Acting as an agent for the Central Government, State Government, or other approved entities for various financial transactions.*

Business the Bank May Not Transact (Section 19)

• Trade engagement ban: In trade or have a direct interest in any commercial, industrial or other undertaking except an interest in the company.
• Share dealings restriction: The Bank cannot purchase the shares of other companies, unless to recover loans.
• Property limitations: Mortgage money/property are to be limited to that for conducting business & residencies only & not otherwise.

Chapter III: Central Banking Functions

• Government business obligation: Accepting money for and transacting government business.
• Bank notes right: Exclusive right to issue bank notes in India.
• Denominations: Bank notes are issued in various denominations e.g., two rupees, five rupees, ten rupees, etc. Not exceeding ten thousand rupees.
• Note Design: The design, form and material of bank notes are approved by the Central Government.
• Legal Tender: Legal tender status for bank notes is guaranteed by the Central Government, though the Central Government can revoke this status for any, some or series of denominations.

Key Sections

• Section 22A: Digital bank note applicability
• Section 29: Bank is exempt from stamp duty on bank notes
• Sections 31 to 45: Related to issue department management of assets and liabilities
• Sections 46: Relating contributions
• Section 47: Surplus profit allocation
• Section 48: Super tax Banks are exempt from super tax