LEGAL ASPECTS OF BANKING OPERATIONS Banking is defined

LEGAL ASPECTS OF BANKING OPERATIONS

**. . Banking is defined in the Banking Regulation Act. • Primary function to accept deposit, lend and invest. • Secondary functions include opening of Letters of credit , Issuing Bank guarantees, Demand Drafts • Mail Transfers, Telegraphic Transfers, Collection of instruments • Executor Trustee services, Dealing in Forex related transactions

• Offering Safe Deposit Locker facilities, accepting Safe custody articles and so on • Oflate bankers offer other services like • ATM, Debit, Credit and other plastic cards • Accepting Electricity, Telephone bills , and extending services on behalf of the Service providers

• Bancassurance, cross selling of various financial products and so on • While the bank is making a person as their customer due care has to be shown taking into consideration the latest provisions of KYC norms • A banker should be able to justify beyond doubt that his customer has become his customer after following all the procedures, norms and he has acted as a prudent banker.

• 01. Bank license is issued by Reserve Bank of India based on the provisions of • A. . Banking Regulation Act • B. . Reserve Bank of India Act • C. . Both a & b • D. . Neither Banking Regulation Act nor Reserve Bank of India Act

02. . Reserve Bank of India Act, 1934 was enacted to constitute the Reserve Bank of India a. . To regularize issue of Bank notes b. . To Regulate the issue of Bank notes c. . For directing the banks when they err d. . To consolidate and amend the law relating to banking

**. Reserve Bank of India act was introduced in 1934 and since then amended from time to include the latest requirements. • A provision was inserted by the Information Technology Act, 2000 to enable RBI to make regulations for regulating payment systems of banks and financial institutions

• 03. . Identify the Act which puts restrictions on the shareholding, directorship, voting rights and other aspects of banking companies. • a. . Companies Act • b. . Banking Regulation Act • C. . Reserve Bank of India Act • D. . All the above mentioned Acts

• 04. . Identify which one is not part of the Banking Regulation act • a. To regulate business of banking companies • b. To control over the management of banking business • c. To wind up a banking business • d. To keep reserves for securing monetary stability in India

• 05. . Private banks are governed by the Companies Act. In respect of their business of banking and by the RBI Act for their constitution. • a. The above is not incorrect • b. The above is incorrect • c. For Constitution, Companies Act and banking business provisions of both Banking Regulation Act and Reserve Bank of India Act • d. There is no role for Companies Act

**. RBI’s whole capital is held by the Central Government. . . The board has one Governor and not more than 4 Deputy Governors appointed by the Central Govt. . RBI alone can issue and mange currency in India as per the provisions of RBI act.

• RBI as regulator of banking sector is mainly by virtue of the provisions of the Banking Regulation Act • RBI inspects banks and exercise supervisory powers and may issue directions in public interest • RBI also collects credit information and make available the same • RBI also imposes penalties wherever applicable

06. . Other than the Governor, Deputy Governors of RBI, the other directors are a. . Appointed b. . Nominated c. . Selected d. . Elected

07. . Reserve Bank of India has the powers to issue currency notes in denominations of a. . Rs. 2/b. . Rs. 50/c. . Rs. 10, 000/d. . All the above

08. . The co-operative banks are under the regulatory purview of the Reserve Bank of India. This is due to the amendment to • a. Reserve Bank of India Act • b. Cooperative Act • C. Banking Regulation Act • d. Both a & b

**The refusal of licence to a company would make it ineligible to undertake banking business, but still the company can carry on other business like money lending. . RBI can stipulate a higher requirements of capital for the purpose of licensing a banking company, the RBI has to be satisfied that the company has adequate capital structure and earning prospects

• In addition to the conditions applicable to domestic banks, foreign banks RBI will look into • a. Whether the carrying on of banking business by the company in India will be in public interest. • b. Whether the government of the law of the country in which the company is incorporated discriminates in any way against banking companies • C. . Whether the company complies with the provisions of the BR Act as applicable to foreign companies

**The Banking Regulation Act authorizes the RBI to cancel the license granted to any banking company. The cancellation may be on account of a. . The company ceases to carry on banking business in India b. . The company at any time fails to comply with any of the conditions imposed or the company does not fulfill at anytime any of the conditions referred in the act.