IIBF JAIIB Legal & Regulatory aspects of Banking Short Notes Part 3

IIBF JAIIB Legal & Regulatory Aspects of Banking Short Notes Part 3

Junior Associates Exams are conducted by IIBF twice in one year for the bankers to provide them a better base in regard to the sector they work in so that they can deliver better customer services. On clearing the JAIIB exam, the bankers also get one year of salary increment in advance and after JAIIB, they can get the same opportunity by clearing CAIIB.

The JAIIB exams for November 2021 attempt are getting conducted in January 2022. Even though the first two papers of JAIIB have been postponed until notified, the LRAB is still on schedule as per the previously notified date i.e 22nd January 2022. 

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In this article, we are providing you guys the next part of the notes of the Law paper of JAIIB (paper no. 3: LRAB). You can also access the first two parts of the LRAB notes from the given links.

Legal & Regulatory Aspects of Banking has 4 modules which are further divided into several units:

Legal and Regulatory Aspects of Banking
  1. Regulations and Compliance
  1. Legal Aspects of Banking Operations
  1. Banking Related Laws
  1. Commercials Laws with Reference to Banking Operations

To check out the detailed syllabus of JAIIB- PPB, AFB & LRAB click here.

JAIIB LRAB Short Notes Part 1 and Part-2



Unit-5: Public Sector Banks & Cooperative Banks

  • Public Sector Banks: State Bank and its subsidiaries, the Nationalised banks & the RRBs are statutory corporations that are established under special statutes.
  • State Bank & its subsidiaries: Like Nationalised banks, they are commercial banks which are engaged in the banking business and other forms of permissible business.
  • State Bank of India was established U/Section 3 of the State Bank of India Act, 1955 to take over the Imperial Bank of India
  • The majority of SBI’s shares are held by RBI. Although freely transferable, the RBI cannot transfer them if it would result reduce its holding < 50% of capital issued. 
  • None of its shareholders (excluding RBI) can exercise voting rights > 10%.
  • SBI’s chairman & MD are appointed for a period < / = 5 years & are eligible for reappointment. Central Govt. can terminate their services by giving 3 months’ notice or notice pay in lieu thereof after consulting RBI.
  • SBI & its subsidiaries and Nationalised banks also act as RBI agents to transact for Central Government’s banking business.
  • Subsidiary Banks: 

State Bank of Hyderabad Act, 1956, 

Saurashtra State banks (amalgamation) Ordinance, 1950 & 

all other banks State Bank of India (Subsidiary Banks) Act, 1959.

  • Board consists of State Bank’s Chairman (ex-officio chairman), MD & other directors. 
  • Regional Rural Banks were first set up in year, 1975, under the RRB Ordinance 1975 which was later replaced by RRB Act, 1976. 

Section 3 of the RRB Act authorises the Central Government to establish RRB by issuing a notification in the official gazette at Sponsor Banks’ Request.

  • So far the holding ratio of issued capital is 50:35:15::Central Government : Sponsor Bank : State govt.
  • RRBs are also commercial banks but they operate in limited areas within the local territory to cater the needs of rural industries, farmers, trade, & artisans etc.
  • Nationalised Banks: The Acts, Bank Nationalisation Act 1970 & Banking companies (Acquisition and Transfer of Undertaking) Act 1980 were passed to transfer existing private banks undertakings to the corresponding new banks which are now popularly known as Nationalised banks. 


  • At the beginning, the entire paid-up capital of the nationalized banks was held by Central government but now some of these banks have made public issue of shares, although the Central Government still holds majority of shares in all the nationalized banks. 
  • The Shares other than in the Central Govts’ holding are freely transferrable
  • SBI Act has divided the share capital into shares of Rs.10 each instead of Rs.100.00.
  • There has been modification on the restriction on voting rights (was restricted to 200 shares only) has been modified upto 10% of the issued capital & restriction on dividend has been deleted.
  • The Banking Companies (Acquisition & Transfer of Undertakings) 

All PSBs (i.e public sector banks) are governed by their respective statutes & the rules, schemes or regulations that has been made U/these statutes. 

  • In addition, certain provisions of the Banking Regulation Act as stipulated in Section 51 of that BR Act as well as the provisions of the Reserve Bank of India Act are also applicable on these banking companies. Thus, they are also governed by other acts along with their own statutes.
  • Cooperative Banks are cooperative societies which are engaged in the business of banking. The co-operative banks if functioning in only one state get registered under the state laws applicable on cooperative societies. 
  • The co-operative banks that operate in more than 1 state, has to get registered under the multi-state Co-operative Societies Act. 
  • The Banking Regulation Act also applies to co-operative banks as given in the Section 56 of that Act with certain modifications. 
  • For this purpose, a co-operative bank could mean a state co-operative bank, a Central co-operative bank or a primary co-operative bank.
  • While, the banks’ constitution are basically the co-operative laws of India, the banking business undertaken by them is being regulated by the Reserve Bank of India under the BR Act.
  • If a cooperative bank is operating in only a single state, the state law is applicable on them and in case these cooperative banks operate in > 1 state then the Central Act is applicable on them.

Important Topic:- JAIIB LRAB MOCK TESTS – Legal & Regulatory Aspects of Banking

  • A cooperative bank is restricted to grant any loans & advances as under:
  1. Loans & advances against its own shares.
  2. Unsecured loans or advances to any of co-operative banks’ directors
  3. Directors’ interest
  4. Unsecured loans & advances in which the Chairman managing agent etc.
You may also be interested in:
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JAIIB EXAM FREE Study Material 2022 Edition: Download PDF pdf




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