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History of Banking Regulation Act 1949

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Banking Act 1949

Banking Regulation Act 1949 is legislation created to supervise all the commercial banks in India. This legislation was passed in the year 1949 and was amended in the year 1965 & made the legislation applicable to all commercial and co-operative banks in India. This legislation or Act provides the RBI (Reserve Bank of India) with the power to give license to a bank and to take the license from a bank. RBI also becomes the shareholder of the bank and gains voting rights due to the Banking Regulation Act 1949. RBI has every right to remove and appoint a board of director while supervising the operations of the bank. This Act also has the right to make changes in the banking policies and issue it to all the banks under RBI.

Why was the Banking Regulation Act 1949 introduced in India?

The Banking Regulation Act 1949 was introduced because banking business in India was very vague during the 1940s, and the government was not able to supervise or regulate the banks based only on the Indian Companies Act 1913. Since the banks were able to run successfully and were not able to maintain the minimum amount of capital, the legislation was introduced. This also helped in decreasing the competition within the banks and helps them in maintaining the minimum capital amount.

The Act also helped these banks in opening up new branches across the state or country through a proper process proposed by the RBI and develops the bank according to the economy stage. The Act helps RBI in appoint new directors in case of an emergency which ensures that the banking sector will never run into crisis. Since there were many cases where unreasonable interest rates and cash reserve ratio was proposed to the customers across the globe, this Act helped in maintaining a certain fixed rate and ratio so that the customers won’t have to go through troubles like taking a huge amount of money from shark loans and other illegal sources. This Act also helps in monitoring the cash flow from international banks and companies and creates regulations accordingly.