What is a banking company?

September 3, 2023

This article is written by Mr.Archak Das, BBALLB student studying in Adamas university, Kolkata. The author is a 2nd year law student.

INTRODUCTION

A banking company is a financial institution that offers banking services to its customers, such as accepting deposits, lending money, and providing various financial services. These institutions may also offer services such as investment management, trading, and insurance.

A banking company can be a commercial bank, a savings bank, or a cooperative bank. Commercial banks are generally larger banks that offer a wide range of services to individuals, businesses, and governments. Savings banks, on the other hand, are typically smaller and focus on personal savings and loans. Cooperative banks are owned and controlled by their members, who are typically customers of the bank. The activities of a banking company are regulated by various government agencies to ensure the safety and soundness of the financial system. These agencies may also provide deposit insurance, which guarantees that customers’ deposits will be reimbursed up to a certain amount in the event of the bank’s failure.

In summary, a banking company is a financial institution that provides banking services to its customers and is regulated by government agencies to ensure the safety and stability of the financial system.

Functions of a banking company.

A banking company typically offers a variety of financial services and products to individuals and businesses. Some of the key functions of a banking company are:

Accepting deposits: Banking companies accept deposits from individuals and businesses, which can be used to lend to other customers or invest in various financial instruments.
Providing loans: Banking companies provide loans to individuals and businesses for various purposes such as home loans, car loans, business loans, personal loans, etc. These loans are typically paid back with interest over a specified period.
Facilitating payments: Banking companies offer payment services such as credit/debit cards, online banking, mobile banking, and wire transfers to facilitate the transfer of funds between individuals and businesses.
Offering investment services: Banking companies may offer investment services such as mutual funds, stocks, bonds, and other financial instruments to help customers grow their wealth.
Providing insurance: Some banking companies also provide insurance products such as life insurance, health insurance, and general insurance to protect individuals and businesses against unforeseen events.
Providing advisory services: Banking companies may offer financial advisory services to help customers make informed investment decisions and manage their finances better.
Providing foreign exchange services: Banking companies also offer foreign exchange services to facilitate the exchange of one currency for another for individuals and businesses engaged in international trade.

Overall, the primary function of a banking company is to provide financial services and products to individuals and businesses to help them manage their money better and achieve their financial goals.

Provisions of Banking Company under The Companies Act and Banking Regulation Act

Section 2(9) of the Companies Act defines a banking company. The other provisions regarding the banking company are laid down in the banking regulations act, 1949.

Some terminology, such as banking, banking company, branch office, and so on, is specified in the Act. A banking firm is one that undertakes banking operations in India. Accepting deposits of money from the public for lending or investment that can be repaid on demand is what banking is all about.

A banking company may engage in the following activities under Section 6(1): borrowing or lending money; buying or selling bills of exchange, promissory notes, coupons, draughts, bills of lading, railway receipts, warrants, debentures; buying or selling foreign exchange; dealing stock, funds, shares, debentures, bonds; carrying on agency business such as clearing and forwarding of goods; conducting guarantee and indemnity business, and so on.

Section 8 of this Act makes trading illegal. Except when selling items held in its security, no banking business shall in any way deal in the purchasing, selling, or bartering of products. Except for bills of exchange obtained through collection or negotiation, the bank shall not engage in any commerce or purchase, sell, or barter goods.

As stated in Section 10 of the Act, the bank should not hire or be employed by the controlling partner. The bank should also not hire someone who has been declared bankrupt or whose pay is based on the company’s profits. At least 51% of the total board members must have professional expertise in accounting, agriculture, rural economy, banking, cooperation, economics, finance, law, small-scale industry, and so on. The director’s tenure of office should not be longer than eight years.

Section 11 stipulates that if a banking company is formed outside of India, the entire value of its paid-up capital must be greater than fifteen lakhs, and it must be greater than twenty lakhs if it has a place for operations in Calcutta, Bombay, or both.

The powers of RBI are mentioned in Section 36. The Reserve Bank has the authority to advise and to forbid banking entities from engaging in a certain transaction. By making loans or advances under Section 18, it may also help the bank. It may instruct the banking company to convene a meeting of its directors to go over business. Additionally, it has the authority to designate executives to oversee the banking company’s operations.

The banking company is required to deposit 20% of its annual profit. If the company has been established in India and has branches in various states, the minimum paid-up capital is five lakh rupees, and if the seat of business is in the cities of Bombay or Calcutta, or both, the minimum paid-up capital is 10 lakh rupees. The company’s paid-up equity must be one lakh rupees for its principal place of company operations, plus 10 thousand rupees for each additional branch located in the same district as its principal place of company operations, plus 25 thousand rupees for each additional branch located somewhere else in the state other than in the same dist. if each of the company’s branches is situated in a different state, but none of them is situated in either Bombay or Calcutta.

Some offences under the banking regulation Act

The Act contains a number of sections that state that anyone who violates the Act’s provisions is subject to fines and/or imprisonment.Section 46 states:

If someone knowingly misrepresents any facts or presents the wrong acts, they might face up to three years in prison and fines of up to one crore rupees.
If a person fails to submit the requested documents or books or refuses to respond to the inspection officer’s queries, they may be subject to fines of up to twenty lakh rupees and up to 50,000 rupees in the case of a recurring infraction.
If the banking firm has received any deposits unlawfully, all of the directors will be held accountable and subject to a fine equal to twice the amount of the deposits made with the banking company.
If the firm has caused a default or the default arose as a result of the director’s negligence, the directors or the secretary will be penalized.

CONCLUSION

The Banking Regulation Act of 1949 will regulate actions of all banking institutions. This Act gives India’s financial sector a suitable framework. In order to prevent fraud and safeguard the interests of depositors, the Act imposes limits on banks. Additionally, it outlines how to dissolve the financial company. The Act also outlines banking company mergers and acquisitions. Thus, this Act enabled the financial companies to grow properly, which was absent prior to 1949.

References

September 3, 2023