JAIIB LRAB Notes – Legal & Regulatory Aspects of Banking Short Notes Part 1
JAIIB Exams are conducted by IIBF. JAIIB is one of many the flagship courses offered by IIBF, twice a year. It is conducted in the months of May & November every year. This course of JAIIB has 3 subjects and LARB or Legal & Regulatory Aspects of Banking is one of the three.
Legal & Regulatory Aspects of Banking has 4 modules which are further divided into units.
|Legal and Regulatory Aspects of Banking||
To check out the detailed syllabus of JAIIB- PPB, AFB & LRAB click here.
JAIIB LRAB SHORT NOTES:-
MODULE – 1: REGULATIONS AND COMPLIANCE:
UNIT – 1: LEGAL FRAMEWORK OF REGULATION OF BANKS
Banking: It is the acceptance of ‘deposits of money from the public for the purpose of lending or investment. These deposits may be repayable on demand or after an agreed period of time by the banker & the customer and may be repayable by cheque, draft, or otherwise.
Other Business Activities: Banks are also authorized to carry on other business activities as specified in Section 6 of the Banking Regulation Act, 1949.
(You can read the full section here in the ACT.)
Prohibited Activities: Banks are, however, prohibited from undertaking any trading activities.
Banks: Banks are companies registered under the Companies Act, 1956 or statutory corporations constituted under Special Statutes or Co-operative societies registered under the Central or State Co-operative Societies Acts.
The extent of applicable regulatory provisions: The Banking Regulation Act & the Reserve Bank of India Acts provisions are applicable to a bank depending on the bank’s constitution.
Central Bank: Reserve Bank of India (RBI) is the central bank of India & the primary regulator for the banking sector.
Government’s control over Bank: The government has direct and indirect control over banks. It exercises indirect control through the RBI & directly through the appeals arising from RBI’s decisions under the various provisions of the Banking Regulation Act.
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Central Government (CG) holds 50% or more stake in public sector banks like SBI and its subsidiaries, nationalized banks, and the RRBs. CG has substantial control over the management of these banks. Only certain BR Act provisions are applicable to these banks as indicated in that Act.
State Government & Reserve Banks both have control over the Co-operative Banks operating only in one state that is registered under the State Co-operative Societies Act.
The non-banking Business of the Bank is subject to control by other regulatory agencies.
Constitution of Bank
Indian Banks fall under one of the below categories:
- Body corporate constituted under a special statute;
- Company registered under Companies Act, 1956 or it could be a foreign company
- Cooperative Society registered under a central or state enactment on cooperative societies.
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Reserve Bank as Central Bank
The Reserve Bank was constituted under Section 3 of the RBI Act. The CG holds the whole of its capital. Some of the functions of RBI are mentioned below:
- Regulation of ‘issue of banknotes
- Maintenance of reserves for ensuring monetary stability
- Generally, to operate the currency & credit system of the country to its advantage
RBI: As a Regulator and a Supervisor has the following powers:
- To inspect and supervise banks
- To License
- To appoint and remove banking boards personnel
- To give directions
- To regulate the business of banks
- Power regarding audit of banks
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Government as a Regulator of Banks
Although RBI is the primary regulator of banks but RBI Act and the BR Act have conferred extensive (direct & indirect) powers to CG over the banks.
UNIT – 2: CONTROL OVER ORGANISATION OF BANKS
License: A banking company intending to commence banking business requires a prior license from the RBI which has the discretion to either reject or approve the license on such conditions as it thinks fit.
RBI has to be satisfied (by inspection or otherwise) of the suitability of the company for a license. RBI can also cancel the license after giving an opportunity to be heard by the bank.
Permission of RB is also required to open new branches or shift branches outside a city/town/village. But a temporary branch that exists for less than 30 days in a town where a bank has an existing branch does not require permission from RBI.
Minimum Capital & Reserves: Banking companies are also required to maintain minimum capital and reserves as per BR Act. Their shareholders are entitled to receive dividends only after all the capitalized expenses have been written off.
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Commission/brokerage payable on selling shares: It is restricted to 2.5% of the paid-up share value.
Board of directors: The bank’s directors have to be the persons having special knowledge or experience in accountancy/banking/economics/law etc., as stipulated and should not have a substantial interest in other companies/firms.
The maximum period of office: 8 years continuously.
Important Topic:- JAIIB LRAB MOCK TESTS – Legal & Regulatory Aspects of Banking
Reconstitution of Board: RBI is empowered to reconstitute the board if the board is not properly constituted. It can remove the chairman & a suitable one in certain cases. It also has the power to terminate directors or managerial personnel or other employees of banking companies
A bank is required to appoint a full-time chairman or a whole-time MD if there is no full-time chairman having specified qualifications.
The corporate governance’s principles including Fit and proper criteria are applicable to the directors of banking companies & public sector banks.
Authorized Capital: The maximum share capital which a company is authorized to issue as per its Memorandum of Association (MOA).
Paid-up Capital: The share capital that is subscribed and paid up.
Subscribed Capital: The share capital that has been issued and subscribed.
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