The Banking Regulation Act, 1949 is the main law that governs banks in India. It gives RBI the power to license, inspect and control banks. Section numbers are asked directly in RBI Grade B, NABARD and SBI PO exams.
Basics
| Fact | Detail |
|---|---|
| Original name | Banking Companies Act, 1949 |
| Came into force | 16 March 1949 |
| Renamed | Banking Regulation Act from 1 March 1966, when it was also extended to co-operative banks |
| Applies to | Banking companies, co-operative banks (through Section 56), RRBs and nationalised banks (partly) |
| Not applicable to | Primary Agricultural Credit Societies (PACS) and co-operative land development banks |
Important sections
| Section | What it says |
|---|---|
| 5(b) | Defines banking: accepting deposits of money from the public for lending or investment, repayable on demand or otherwise and withdrawable by cheque, draft or order |
| 5(c) | Defines a banking company |
| 6 | Lists the forms of business a bank may carry on |
| 7 | Use of the words “bank“, “banker” or “banking” in the name |
| 8 | Banks cannot trade in goods (buying, selling, bartering) |
| 9 | Disposal of non-banking assets within 7 years |
| 10 | Rules on management; who cannot be employed |
| 10A | Composition of the board of directors (majority with special knowledge) |
| 10B | Bank to be managed by a whole-time chairman / managing director |
| 11 | Minimum paid-up capital and reserves |
| 12 | Capital structure; caps on voting rights (RBI can allow up to 26%) |
| 12B | RBI approval needed to acquire 5% or more of a bank’s shares or voting rights |
| 17 | Transfer of at least 20% of profit to reserve fund |
| 18 | CRR for non-scheduled banks |
| 20 | Restrictions on loans to directors |
| 21 | RBI’s power to control advances |
| 22 | Licensing of banks by RBI |
| 23 | Branch licensing (opening and shifting branches) |
| 24 | SLR: ceiling of 40% of NDTL |
| 26 | Return of unclaimed deposits (accounts not operated for 10 years) |
| 26A | Depositor Education and Awareness (DEA) Fund (2014) |
| 35 | Inspection of banks by RBI |
| 35A | RBI can issue directions to banks |
| 35AA | Government can authorise RBI to direct banks to start insolvency under IBC (added in 2017) |
| 35AB | RBI can issue directions on the resolution of stressed assets |
| 36AA | RBI can remove a chairman, director or officer |
| 36ACA | RBI can supersede the board of a bank (with government approval) |
| 45 | RBI can apply for a moratorium and prepare a scheme of amalgamation or reconstruction |
| 45Z–45ZF | Nomination for deposits, lockers and safe custody articles |
| 49A | No one other than a bank (or allowed institutions) can accept deposits withdrawable by cheque |
| 56 | Application of the Act to co-operative banks |
Banking Regulation (Amendment) Act, 2020
- Passed after the PMC Bank crisis (2019).
- Brought urban co-operative banks and multi-state co-operative banks under closer RBI regulation (management, capital, audit, winding up), as with commercial banks.
- Allowed co-operative banks to raise capital through shares and debentures (with RBI approval).
- RBI can start a scheme of reconstruction or amalgamation without first imposing a moratorium.
- PACS and co-operative societies whose main business is long-term agricultural finance remain outside the Act.
Banking Laws (Amendment) Act, 2025
This Act changed five laws, including the RBI Act, the BR Act, the SBI Act and the Bank Nationalisation Acts. Key changes:
| Change | Old | New |
|---|---|---|
| Nominees per deposit account | 1 | Up to 4 (simultaneous or successive) |
| “Substantial interest” in a company (for directors) | ₹5 lakh | ₹2 crore |
| Tenure of co-operative bank directors (other than chairman/whole-time director) | 8 years | 10 years |
| Regulatory reporting dates for banks | 2nd and 4th Friday | 15th and last day of each month |
| Unclaimed shares, interest and bond redemption amounts | Not covered | Can be moved to the Investor Education and Protection Fund (IEPF) |
| State co-operative bank directors | Restricted | A Central Co-operative Bank director may serve on the State Co-operative Bank board |
Most provisions were notified in stages during 2025 (the nominee changes from 1 November 2025, approx). Check RBI circulars for exact dates.
Exam-ready one-liners
- BR Act came into force on 16 March 1949 as the Banking Companies Act.
- It was renamed the BR Act in 1966 and extended to co-operative banks.
- Section 5(b) defines banking; Section 22 deals with licensing.
- Section 24 is SLR; its ceiling is 40%.
- Section 35A: RBI directions; Section 35AA (2017): directions for insolvency under IBC.
- Section 26A: Depositor Education and Awareness Fund (unclaimed for 10 years).
- Banking Laws (Amendment) Act, 2025 allows up to 4 nominees.
- “Substantial interest” limit was raised from ₹5 lakh to ₹2 crore in 2025.
Related reading
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Based on the Banking Regulation Act, 1949 as amended, including the 2020 and 2025 amendments, as reported. Check legislative.gov.in for the current text.
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