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Banks in India fall under one of the following categories:
1. Body corporate constituted under a special statute;
2. Company registered under Companies Act, 1956 / foreign company
3. Cooperative Society registered under a central and state enactment on cooperative societies.
The Reserve Bank was constituted under Section 3 of RBI Act. The Central Govt holds the whole capital of RBI.
1. Regulating the issue of bank notes
2. Keeping of reserves for ensuring monetary stability
3. Generally to operate the currency and credit system of the country to its advantage.
For opening new branches or shifting branches outside a city, town or village, permission of the Reserve Bank is required.
Banking companies have to have minimum capital and reserves as specified in the Banking Regulation Act. The shareholders of a banking company are entitled to dividends only after all the capitalised expenses are written off.
The board of directors of a bank has to be constituted with persons having special knowledge or experience in accountancy, banking, economics, law, etc., as stipulated. The directors should not have substantial interest in other companies or firms. The maximum period of office is limited to eight years continuously.
Authorized Capital the maximum limits of share capital which a company is authorised to have under its Memorandum.
A Temporary branch for less than 30 days in a town where a bank has an existing branch does not require permission from RBI.
Banking companies also have to transfer to the reserve fund twenty per cent of their annual profits as disclosed in the profit and loss account.
Regulation of credit to different sectors of the economy is known as Selective Credit Control.
While General Credit Controls operate on the cost and volume of credit, Selective credit controls aim at regulating the distribution or direction of bank resources to particulars sectors of the economy.
Cash Reserve : The penalty which is payable by a banking company which is scheduled bank for failure to maintain cash reserve in any week for the first time is 3% of over bank rate. For 2nd time 5% over bank rate.
Every banking company has to prepare its balance sheet and profit and loss account annually as at the end of the calendar year or at the end of twelve months as on a date notified by the Central Government.
Board for Financial Supervisionis constituted by RBI. The board consists of Chairman (Governor of RBI), Vice Chairman (one of the Dy. Governor of RBI), Four directors from the Central Board.
The board meets at least once in a month. Three members of whom one Chairman / vice-chairman shall form a quorum for the meeting.
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