Wednesday, 14 September 2016

Reserve Bank of India Act

The Reserve Bank of India Act,1934 was enacted for Establishment and incorporation of Reserve Bank:
1) A bank to be called the Reserve Bank of India shall be constituted for the purposes of  
    taking over the management of the currency from the Central Government and of carrying
    on the business of banking in accordance with the provisions of this Act. 

2) The Bank shall be a body corporate by the name of the Reserve Bank of India, having
     perpetual succession and a common seal, and shall by the said name sue and be sued. 

The initial capital of the Reserve Bank was five crore of rupees.
The Chapter I of the Act explains Short title, extent, commencement and definition of the Act.

The Chapter II of the Act explains incorporation, capital, management and it's intended business.

Its central banking functions are defined in Chapter III of the Act as:
  • Obligation of the Bank to transact Government business.
  • Bank to have the right to transact Government business in India.
  • Bank to transact Government business of States on agreement.
  • The Bank shall have the sole right to issue bank notes in India.
  • Issue of special bank notes and special one rupee notes in certain cases.
  • Cash reserves of scheduled banks to be kept with the Bank.
The Chapter IIIA of the Act explains the collection and furnishing of credit information. It explains:

  • Power of Bank to collect credit information.
  • Power to call for returns containing credit information.
  • Procedure for furnishing credit information to banking companies.
  • Disclosure of information prohibited.
  • Certain claims for compensation barred.
The Chapter IIIB of the Act explains the provisions related to non-banking institutions receiving deposits and financial institutions. It explains:
  • Bank to regulate or prohibit issue of prospectus or advertisement soliciting deposits of money. 
  • Power of Bank to collect information from non-banking institutions as to deposits and to give directions. 
  • Power of Bank to call for information from financial institutions and to give directions.  
The Chapter IIIB of the Act explains the prohibition of acceptance of deposits by unincorporated bodies.

The Chapter IIID of the Act explains provisions related to regulations of derivatives, money market institutions, securities etc:
  • Power to regulate transactions in derivatives, money market instruments, etc
  • Duty to comply with directions and furnish information
The Chapter IV of the Act deals with general provisions related to:
  • Contribution by Central Government to the Reserve Fund.
  •  Contribution to National Rural Credit (Long Term Operations) Fund and National Rural Credit (Stabilisation) Fund
  • National Industrial Credit (Long Term Operations) Fund.
  • Allocation of surplus profits.
  • Exemption of Bank from income-tax and super-tax.  
  • Publication of bank rate. 
  • Auditors.  
  • Appointment of special auditors by Government.
  • Powers and duties of auditors.
  • Returns
  • Rural Credit and Development
  • Delegation of powers
  • Power of Bank to depute its employees to other institutions.
  • Liquidation of the Bank
  • Power of the Central Board to make regulations.
  • Protection of action taken in good faith
The Chapter V of the Act deals with provisions of penalties. 

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