Banking Regulation Act: Business of Banking Company

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6 Questions

What is the primary business activity defined for a banking company in the Banking Regulation Act?

Borrowing and lending money

According to Section 7 of the Banking Regulation Act, who is allowed to use the word 'bank' in their name?

Only a banking company

What is the restriction imposed on banks regarding trading activities according to Section 8 of the Banking Regulation Act?

Trading, buying, or selling goods

For how long can banks hold immovable property according to Section 9 of the Banking Regulation Act?

7 years

What is the minimum paid-up capital and reserves required for foreign banks under the Banking Regulation Act?

₹ 15 lakhs

Who has the authority to stipulate a higher minimum paid-up capital and reserves requirement for banks?

Reserve Bank of India (RBI)

Study Notes

Banking Regulation Act and Banking Business

  • The Banking Regulation Act (BR Act) defines the business of banking in Section 5(b) as the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.
  • A banking company's authorised business includes business of banking, borrowing/lending money, dealing in bills, collection of bills, buying and selling foreign exchange, lockers, issuing letters of credit, Traveller's Cheques, mortgage, insurance, and acting as trustee/agent.
  • The Central Government may notify other forms of business that a banking company can engage in.
  • Banks are not permitted to engage in any form of business not mentioned in the BR Act.

Use of the Word "Bank" or "Banking" in Name

  • Only a banking company can use the word 'bank', 'banker', 'banking' as part of their name.

Restrictions on Banks

  • Banks are prohibited from trading, buying or selling or bartering of goods, except for realisation of securities held by it.

Holding Immovable Property

  • Banks cannot hold immovable property (except for its own use) for more than seven years.
  • The RBI may extend this period by 5 years.

Capital, Reserves, and Voting Rights

  • The minimum paid-up capital and reserves for foreign banks are ₹ 15 lakhs and ₹ 20 lakhs if it had branches/offices in Mumbai and/or Kolkata.
  • The minimum paid-up capital and reserves for domestic banks are ₹ 5.00 lac.
  • The RBI has the power to stipulate a higher requirement under Section 22.

Explore the provisions of the Banking Regulation Act related to the authorized business activities of a banking company, as defined in Section 6(1)(a) to (o). Learn about the different forms of business operations such as borrowing/lending money, dealing in bills, foreign exchange, insurance, and more as per the Act.

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