Today we are seeing the Banking structure and its legal aspects .
DEFINITION OF BANK AND BANKING
After independence, steps were taken in order to regulate the banking and banking business in India. The government brought in a law in this regard, wherein banking and banking business in India has been defined. This law became an Act and called the Banking Regulation Act, (BR Act), 1949.
As per the Act, Section 5(c) provides that ‘a banking company is a company which transacts the business of banking in India.’
Further, Section 5(b) of the BR Act defines banking business as, ‘accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.’
RBI is divided into two as Organized sector and Unorganized Sector. Organized Sector is further divided into Commercial Banks and Cooperative Banks .
The Commercial Banks and Cooperative Banks structure is given in the picture below.
Unorganized sector is divided into 4 types as:
- Indigenous Banks
- Money Lenders
- Chit Funds
- Scheduled Banks have been defined in the Reserve Bank of India Act as those which are included in the second schedule of the RBI Act, 1934.
- In order to be included in the second schedule of the RBI Act, a bank must fulfil the following three criteria:
- The paid-up capital and reserves together should not be less than Rupees 5 lakhs.
- working of the bank should not be detrimental to the interests of the depositors.
- The banks to be included in the second schedule should either be a company as per the Companies Act, 1956 or a State Cooperative Bank or a corporation or any institution notified by the Government of India in this behalf.
- On the other hand, a non-scheduled bank is one whose paid-up capital is less than Rupees 5 lakhs.
- A Unit Banking System comprises of a main corporate office having single branch doing banking business in a given area of operation.
The money market financial instruments - types and structure are given in the image below.
The governance of banks in India is largely controlled by some important laws / Acts. Illustratively, these are:
- The Reserve Bank of India Act (1934)
- The Banking Regulation Act (1949) that applies to all activities of all banking companies including sections applicable to Cooperative Banks in India.
- Negotiable Instruments Act (1881).
- Bankers’ Books Evidence Act (1891),
- SBI Act (1955),
- Regional Rural Bank Act (1976),
The Reserve Bank of India is responsible for the regulation and supervision of banks as empowered under the Banking Regulation Act.
FIMMDA stands for The Fixed Income Money Market and Derivatives Association of India (FIMMDA). It is an Association of Commercial Banks, Financial Institutions and Primary Dealers. FIMMDA is a voluntary market body for the bond, Money and Derivatives Markets.
INVESTOR PROTECTION FUND (IPF):
ISE has set up an Investor Protection Fund (IPF) to meet the claims of investors against defaulter Members, in accordance with the Guidelines issued by the Ministry of Finance, Government of India.
ISE has established an Inter-connected Stock Exchange Investor Protection Fund Trust (ISE-IPF Trust) with the objective of compensating investors in the event of defaulters' assets not being sufficient to meet the admitted claims of investors, promoting investor education, awareness and research. The Investor Protection Fund (IPF) is administered by way of registered Trust created for the purpose. The Inter-connected Stock Exchange Investor Protection Fund Trust is managed by Trustees.
The Inter-connected Stock Exchange Investor Protection Fund Trust, based on the recommendations of the Defaulters' Committee, compensates the investors to the extent of funds found insufficient in Defaulters' account to meet the admitted value of the claim, subject to a maximum limit as per decided by Trust per investor per defaulter/ expelled member.