Q: What are the powers and functions of Reserve Bank of India under Banking Regulation Act, 1949 ?

Ans- Powers and Functions of Reserve Bank of India under Banking Regulation Act, 1949 which was previously known as Banking Companies Act, 1949 : 

As a matter of fact, it is true that the Reserve Bank of India has been playing a vital role regarding establishing the new banks, development of old banks and controlling of the existing banking companies in India right since its origin in 1935. It is to be noted that various measures have since been adopted by the Reserve Bank of India under the provisions of Regulation Act, 1949 which are as follows:-

1. Power to Maintain Reserve Fund-
According to the provisions of S.17, Reserve Bank may by order in writing declare that provisions of Reserve Fund shall not apply to the banking company for such period as may be prescribed with order. The Banking company shall transfer each year not less than prescribed with order banking company shall transfer each year not less than 20% of its profits to the Reserve Fund.

2. Power to Maintain Cash Reserve-According to Section 18, every banking company except scheduled banks shall maintain Cash Reserve in a current account with the Reserve Bank a sum equivalent to at least 3% of the total of its demand and time liabilities and shall submit to the Reserve Bank. Reserve Bank may for the purpose of this Section 18 and Section 24 specify from time to time regarding liability in India of a banking company and decision of Reserve Bank as to any question on it shall be final.

3. Power to Settle the Terms of Loans and Advances:  According to Section 20, the terms and conditions of loans and advances and recovery of them including rate of interest shall be governed by the guidelines issued by the Reserve Bank of India. This is a measure in the hands of Reserve Bank to control the financial position of the country. This plays a very crucial role in monetary system. Section 21-A provides that rates of interest charged by banking companies are not to be subjected to scrutiny by courts.

4. Power to Grant Licensing for Banking Companies: Section  22 says that no company shall carry on banking business in India unless it holds a licence issued by the Reserve Bank and such licence may be issued subject to such conditions as the Reserve Bank may think fit to impose. Grant and cancellation of licence are made by the Reserve Bank of India.

5. Power of Granting Permission of Opening of New, Transfer of Existing, Place of Business of India etc.-Section 23 provides that without obtaining prior permission of the Reserve Bank of india, no banking company shall open a new place of business or change the place in or outside India.

6. Power to Maintain of a Percentage of Assets:- Section 24 says that every banking company shall maintain in India in gold, unencumbered approved securities not less than 20% of the total demand and time liabilities. Reserve Bank may require a banking to furnish to it a return in the form and manner by showing particulars of assets maintained in accordance with this section. Every banking company shall at every quarter submit to the Reserve Bank a return of the assets and liabilities in the prescribed form and manner.

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