 the reserve bank of india (amendment) bill, 1956(as intboduollld in lok sabra)  the reserve bank of india (amendment) bill,i9s6 (as introduced in lok sabha)a bill further to amend the reserve bank of india act, 1934 be it enacted by parliament in the seventh year of the republic of india as follows:-1 (1) this act may be called the reserve bank of india (amend- :3~~e ment) act, 1956 menccment 5 (2) it shall come into force on such date as the central government may by notification in the official gazette appoint, and different dates may be appointed for different provisions of this act a of 1934 2 in section b of the reserve bank of india act, 1934 (hereinafter ~~ent referred to as the principal j\ct),-0 aect on~ 10 (a) in sub-section (1),-(i) clause (b) shall be oj!1itted; (ii) in clause (c), for the word "six", the word "ten" shall be substituted;  (b) for sub-section (6), the following sub-sectlon shall be is substituted, namely:-6a of 19411 20 "(6) out of the six directors, first nominated under clause (c) of sub-section (1) as in force immediately afte'r the commencement of the reserve bank (transfer to public ownership) act, 1948, two shall retire at the end of one year, two at the end of two years and the last two at the end of three years, the directors so to retire being determined by lot out of the four directors, first nominated after the commencement of the reserve bank of india (amendment) act, 1956, under clause (c) of sub-section (1), such nomination having been made by reason of the fact that the number of directors to be nomintted under the 5 said clause has been incr~ased, two shall retire at the end of one year and the other two shall retire at the end of two years the directors so to retire being determined by lot" jo 3 section 9 of the principal act shall be omitted omiaaionof aec:tion 9  4 in section 10 of the principal act,-amendment of aec:tion 10 (4) in sub-section (1), the words "or a ·member of a local board" shah be omitted; (ib) in sub-section (2), the words "or members of the same local board" shall be omitted 15  5 in section 1) of the principal act,-ameodment of liction ii (a) in sub-section (1), the words "or any member of a local board" shall be omitted;  (b) 'in sub-section (2), the words, brackets and letter "clause 20 (b) or" shall be omitted; (c) in sub-section (3), for the words "and the centra<l bc,ard shall remove from office any member of a local board, if such i;>irector or member", the words "if such director" shall be substituted; (d) in sub-section (4),-25 (i) the words "or member of a lo<;al board" shall be omitted; (ii) for the words "either as director or as member of a local board", the words "as director" sha<l1 be substituted; (e) in suh-section (5),-(i) the words "or member of a local board" occurring twice shall be omitted; - (ii) the words "or member of the local board" shall be omitted; (f) in suh-section (6), the words "and a member of a local 35 board may resign his office to the centra<l board" shall be omitted amc:nd1dcllt 6 in section 12 of the principal act, sub-section (3) shall be of aectioo u omitted 7 in section 19 of the principal act, after the figures "18", the amendment figures "42" shall be inserted - ofection 19· 8 in section 33 of the principal act,~ amendment of section 33 (a) for sub-section (2) the following sub-section substituted, namely:-shall be ' s "(2) of the total amount of the assets, the amount of gold coin or gold bullion and the amount of foreign securities shall not at any time be less than one hundred and fifteen crores of rupees and four hundred crores of rupees respec-10 tively in value"; (b) in sub-section (4), for the figures "847512", the figures "288" shall be substituted 9 for section 37 of the principal act, the following section shall substitution be substituted namely: -ofn~ , lectlon for section 37 is "37 notwithstanding anything contained in the foregoing suspension provisions, the bank ma'y, with the previous sanction of the of~eten· let  "  qulrcm 8 central government, for periods, not exceeding six months m s to foreign the first instance, which may, with the like sanction, be extended securities from time to time by periods not exceeding three months at a 20 time, hold as assets foreign securities of less amount in value than that required by sub-section (2) of section 33: provided that the amount of foreign securities so held shall not at any time be less than three hundred crores of rupees in value" 10 "1n section 42 of the principal act,-amendment of section 43 (a) for sub-section (1), the following substituted, namely:-sub-sections shall be 35 (1) every ·bank included in the second schedule shall maintain with the baz1k an average daily balance the amount of' which shall not be less than five per cent of the demand liabilities and two per cent of the time liabilities in india of such bank as shown in the return referred to in sul>-section (2): provided that the bank may, by notification in the gazette of india increase the said rates to such higher rates as may be specified in the notification so however, that the rate shall not be more than twenty per cent, in the case of demand liabilities and more than eight per cent, in- the case of time liabilities eplanation-for the purposes of this section,-(a) 'average daily balance' shah mean the average of the balances held at the close of business on each day of a week; (b) 'we?k' shall mean the period from saturday to 5 the following fridary, both days inclusive; (c) 'liabilities' shall not include the paid-up capital or the reserves, or any credit balance in the profit and loss account of the bank or the amount of any loan taken from the bank, the state bank, or any other bank jo notified by the central government in this behalf (la) notwithstanding anything contained in sub-section (1), the bank may, by notification in the gazette of india, direct that every scheduled bank shall, with effect from such date as may be specified in the notification, maintain 15 with the bank, in addition to the balance prescribed by or under sub-section (1), an additional average daily balance the amount of which shall not b? less than the rates specified in the notification, such additional balance being calculated with reference to the excess of the demand and 20 time liabilities of the bank as shown in the return referred to in sub-section (2) over its demand and time liabilities at the close of business on the date specified in the notification as shown by such return so however, that the additional balance shall, in no case, be more t~an such excess: 25 provided that nothing in this sub-section shall make it necessary for any scheduled bank to maintain with the bank any ,balance which shall be more than twenty per ccnt of its demand liabilities and eight per cent of its time liabilities as shown in the return referred to in sub-section (2) 30 (1b) where any scheduled bank maintains, in pursuance of a notification issued under-the proviso to sub-section (1) or under sub-section (la), any balance with the bank the amount of which is not less than that required to be main- tained by such notification, the bank may pay to the 35 scheduled bank interest at such rate or rates as may be determined by the bank from time to time on the amount  by which such balance actually maintained is in excess of the balance which the scheduled bank would have to maintain, if no such notific~tion was issued: 40 provided that no interest shall be payable on any such amount actually maintained as is in excess of the balance required to be maintained by or under sub-section (1) or under sub-section (la)"; (b) for sub-section (3), the following sub-section shall be substituted, namely:-s 10 "(3) if the average daily balance held at the bank by a scheduled bank during any week is below the minimum prescribed by or under sub-section (1) or sub-section (la), such schedul~d bank shall be liable to pay to the bank in respect of that week penal interest at a rate of three per cent above the bank rate on the amount by which such balance with the bank falls short of the prescribed minimum, and if during the next succeeding week, such average daily balance is still below the prescribed minimum, the rates of penal interest :;hall be increased to a rate of five per cent above the bank rate in respect of that week and each subsequent week during which the deafult continues on the amount by which such balance at the bank falls short of the prescribed minimum"; 20 (c) in sub-section (3a), for the portion commencing with the words "if thereafter on the day fixed for the next return" and ending with the words "receiving after the said day any fresh deposit", the following shall be substituted, namely:-"if thereafter the average daily balance held at the bank during the next succeeding week is still below the prescribed minimum,-25 (a) every director, manager or secretary of the scheduled bank, who is knowingly and wilfully ai party to the default, shall be punishable with fine which may extend to five hundred rupees and with a 'further fine which may extend to five hundred rupees for each subsequent week during which the default continues, and (b) the bank may prohibit the scheduled bank frrom receiving after the said week any fresh deposit," 11 in clause (b) of sub-section (2) of section 46a of the principal amendment 35 act -of section , 46a (a) the words "for agricultural purposes" shall be omitted; and (b) after the words "by the bank", the words "and such loans and advances may be made for agricultural purposes or for 40 such other purposes connected with the agricultural activities as the central board may, from time to time, by regulation or otherwise, determine" shall be inserted  amendment 12 in sub-section (2) ot section 58 of the principal act, clause (9) of acction 58 shall be omitted s 10 of 1949 omiaaion of 13 the first schedule to the principal act shall be omitted the first schedule amendment 14 1n sub-section (2) of section 24 of' the banking companies act, of scction 24 1949 for the words brackets and figures "sub-section (1) of section of the' , banldq, 42", the word and figures "section 42" shall be substituted ~~q  act 1049  statement,of obj·ects and reasonsthe existing provisions "in the reserve bank of india act in regard to reserve requirements place a serious limitation on the ability of tile reserve bank to regulate the expa<nsion of currency to meet the'requirements of the second five' year plan the process of planned economic development necessarily implies 8 certain amount of credit creation and a consequent increase in the note issue at the same time, as'8 -result of the' same process of investment and development,' foreign exchange reserves are likely to decrease it is, therefore, necessary to vary the existing minimum currency reserve requirements; moreover, deficit financing in the pla,n may also result in a large addition to bglilk reserves with consequent increase in the capacity of banks to create credit in order to control such oreation of credit by banks it is, necessary to grant additional powers to the reserve bank to regulate credit extension and to check any infiationslry trend developing it is, therefore, considered necessary to amend the ,reserve bank, of india act to achieve these objects the bill thus includes the, following principal amendments to the reserve aank of india act with a consequentiall amendment of a routine nature in the banking companies act, 1949 ;-' " (1) section 33 (2) 'is 1 being amended to provide for a minimum holding of rs 400crores in foreign securities and rs115 crores in gold in the issue department of the reserve bank; (ii) section 33(4) is being a~~nd~d to ~evaiue gold ~t ute rate ~reed to by t~e interpatlonal mon~tai:y ,fund;, , ' (iii) section 37 is being amel'lqed· to provide ,fof"the tempo rary suspension of assets requirements in respect of foreign security withol)t parn;t,nt·of ~ytax: to government; and j ·t (iv) section 42 is ~ing amended so ~at the machinery of the reserve ;~8f1k for credit control may be strengthened l'  ~ 1 ••  - • 2 the opportullity to' amema ·the, act, is·-al~o being utilised to carry out~rtain; ,further  amendments, of :mino~' import1l~e one ::1' c "1" • ' z' ','  , ", ' o· ':   ' i , l such amendment is to enable the reserve bank to make- advances from the newly-created national agricultural credit (long term operations) fund to state co·operative banks for such purposes as are allied to or assist agricultural activities and the others are to abolish the local boards which have lost their importance after the nationalisation of the bellik c d deshmukh new delhi; the 13th april, 1956  - n otu on clausesclause i-this clause empowers the central government to bring the various provisions c,f the act into force on such different dates as may be found convenient clauses 2 to 6-clause 3 seeks to abolish local boards and other amendments are consequential the local boards at bombay, ca'cutta,' delhi and madras are mainly attending to the work of the reserve bank connected with the transfer of shares, scrutiny of claims to shares belonging to deceased share-holders, etc, with the transfer of the reserve bank to public ownership and the disappearance of share-holders, the local boards have no longer any important functions to perform clause 7-this amendment is consequential to the amendment of section 42 proposed in clause 10 clause 8-the reasons for amending section 33 of the act have been explained in the statement of objects and reasons subsection (2) is being amended tq provide for statutory minimum reserves of gold and foreign securities in absolute terms in the place of a ratio between reserves and note circulation as at present amendment of sub-section (4) provides for gold held as currency reserves being valued at 288 grains of fine geld per rupee as sgainst the present valuation at the rate of 847512 grains clause 9-under the existing section 37, the assets requirements of the issue department of the reserve bank may be suspended initially for a period of 30 days only which may subsequently be extended from time to time by periods not exceeding 15 days at a time this clause seeks to permit such suspension initially for a period of six months which may be extended from time to time by periods not exceeding three months at a time  the existing provision regarding payment of tax to government when the holding of the assets of the issue department falls below the minimum prescribed by sub-section (2) of section 33 is being omitted as with the nationalisation of the reserve bank, the entire surplus profit of the bank is payable to government and this provision has lost its significance clause lo-this clause vests the reserve bank with the power  to vary reserve requirements of scheduled banks within the range of 5· to 20 per cent, in respect of demand liabilities and 2 to 8 per cent, in respect of time liabilities and to require them to maintain additional reserves in respect of any increase in deposits with them after a specified date and the additional reserves required to be maintained may be upto one hundred per cent of 8uch increase the overall reserves so to be maintained should not, however, exceed 20 per cent of,demand liabilities and 8 per cent of time liabilities within the above limits, the reserve bank is being authorised to prescribe ratios in such a manner as to immobilise the maximum amount of reserves necessary without 8ft the same time adversely affecting such banks as have not participated in the rise in deposits the clause also provides for payment of interest to scheduled banks, at the discretion of the reserve bank 0'" the additiond reserves maintained by them with the reserve bank, but such interest is not payable if the prescribed minimum balance is not maintained clause n-under section 17 (4a) of the act, the reserve bank is authorised to make loans and advances' from the' nationa~ agricultural credit (long term operations) fund established under section 46a such loans and advances include medium-term loans to state co-operative banks for agricultural purposes, as specified in sub-section (2) (b) of section 46a it is doubtful whether under section 46a (2) (b), the reserve bank can make any advances to state co-operative banks, even in proved cases of necessity, to enable them to lend to small and medium cunivators 10r such purposes as are allied to or will assist agricultural activities, such 81 purchase" of shares in co-operative societies and con~nis:  this amendment is intended to remove the doubt by enlarging'the scope, of s\1bsection (2(b) of section 46a in order to enable the reserve 'bank' to make aavances for such purposes clauses 12 and 13-these' clauses are consequential amendments  arising out of the abolition- of local boards ' , c~use 14  :this ·cla~'~endb sec:tm,n)4 of t~e ~~~~  cq~-  panies act 1949 and i$, copsc;~wenti\ to the amendmgiit (,f section 42 of the re$e;';e bank of rn~u ''act - i (1"1  annexure extracts from the reserve bank of india act, 1934(no 2 of 1934) - - - - - - 8 (1) the centrl1 board shall consist of the following directors, composition namely'-of the central  ~m,md - - - - - - term of oftlce of directon (b) four directors to be nominated by the central government, one froll} each of the four local boards as constituted by section 9; (c) six directors to be nominated by the central government; and - - - - - - (6) out of the six directors first nominated under clause (c) of sub-section (1), two shall retire at the end of one year, two at the end of two years and the last two at the end of three years, the directors so to retire being determined, by lot  - - - - - - 9 (1) a local board shall be constituted for each of the four local boards, areas specified in the first schedule and shall consist of five members th~ codsdtitutlon an to be appointed by the central government to represent, as far as fudctions possible, territorial and economic interests and the interests of cooperative and' indigenous ban'ks (2) 'the members of the local board shall elect from amongst themselves one person to be the chairman of the board - - - - - - (3) the members of the local board shall hold office for a term of· four years and shall be eligible for re-appointment (4) a localboard shall advise the central board on such matters as may be generally or specifically referred to it and shall perform such duties as the central boa~ may delegate to it   ,10  (1) n~' ,person play be a director or a member of a board who-:- , (a)·· is a salm;ied government official, 'or local disqua1ifi- cations, of ,directors md memben of local boards '(b) is, or at anytime  has b~n,adjridicated an insqlvent,· or· has ,stlspende<ipayment or has compounded with his creditors,· or (c) is found lunatic or becomes of unsound mind, or (d) is an officer or employee of any bank, or (e) is a director of any bank, other than the state bank or any of its subsidiary banks or a bank which is a society registered or deemed to be registered' under the co-operative societies act, 1912, or any other law for the time being in force 2 or 1912 in india relating to co-operative societies (2) no two persons who are partners of the same mercantile firm, or are directors of the same private company, or one of whom is the general agent of or holds a power of procuration from the other, or from a mercantile firm of which the other is a partner, may be directors or members of the same local board at the same time - - - - - - removal 11 (1) the central government may remove from oflice the t"ro!n and vra- governor, or a deputy governor or any other director or any canon 0 office member of a local board (2) a director nominated under clause (b) or clause (c) of sub-section (1) of section 8 shall cease to hold office if without leave from the central board he absents himself from three consecutive meetings of the board convened under sub-section (1) of section 13 (3) the central government shall remove from office any director, and the central board shall remove from office any member of a local board, if such director or member becomes subject to any of the disqualifications specified in sub-section (1) or sub-section (2) of section 10 (4) a director or member of a local board removed orce~ing­to hold office under the foregoing sub-section shall not be eligible for re-appointment either as director or as member of a local board until the expiry of the term for which his appointment was made (5) the nomination as dii'ector or me!mber of a local board 'of', any person who is a member of parliament or the legislature ,of ,  any state shall be void, unless, within two months of the date of'~is;, ", ',nomination, he ceases to be such member, and, if any director or--member of a local' board "is ·elected or nominated as a meinber of parliament or any such legislature, he shall cease to be a director or  lnem~;r of ~he local board asfrom·the date·\'if such election or nomination, as the case may be  (6) a director may resign his office to the central government, and a member of a local board may resign his office to the central board, and on the acceptance of the resignation the office shall become vacant 12 (1) '" '" '" '" '" casual vacancies and (3) where any casual vacancy in the office of any member of a absences local board occurs, the central board may nominate thereto any person recommended by the other members of the local board '" '" '" '" '" 19 save as otherwise provided in sections 17, 18 and 45, the bank business may notwhich the ", bank may '" '" '" '" '" '" not transact 33 (1) assets of the issue department '" '" '" '" '" '" (2) of the total amount of the assets, not less t~n two-fifths shall consist of gold coin, gold bullion or foreign securities: provided that the amount of gold coin and gold bullion shall not at any time be less than forty crores of rupees in value '" '" '" (4) for the purposes of this section, gold coin, and gold bullion shall be valued at 8·47512 grains of fine gold per rupee, rupee coin shall be valued at its face value, and securities shall be valued at the market rate for the time being obtaining '" '" '" - '" '" 37 (1) notwithstanding anything contained in the foregoing suspension provisions, the bank may, with the previous sanction of the central ~:~::~ government, for periods not exceeding thirty days in the first ins- ments tance, which may, with the like sanction, be extended from time to time by periods not exceeding fifteen days, hold as assets gold coin, gold bullion or foreign securities of less aggregate amount than that required by sub-section (2) of section 33 and, whilst the holding is so reduced, the proviso to that sub-section shall cease to be operative: - provided that the gold coin and gold bullion held as such assets shall not be reduced below the amount specified in the proviso to sub-section (2) of section 33' so long as any foreign securities remain held as such assets (2) in respect of any period during which the holding of gold coin, gold bullion and foreign securities is reduced under sub·sectiod (1), the bank shall pay to the central government a tax upon the amount by which such holding is reduced ·below the minimum prescribed by sub-section (2) of section 33; and such tax shall be payable at the bank rate for the time being in force, with an addition of one per cent per annum when such holding exceeds thirtytwo and a half per cent of the total amount of the assets and of a further one and a half per cent per annum in res~ct of every further decrease of two and a half per cent or part of such decrease: provided that the tax shall not in any event be payable at a rllte less than six per cent per annum    -   cash reaerv-42 (1) every bank included in the second schedule shall maind~~~~k8 tain with the bank a balance the amount of which shalll'lot at the to be kept close of business on any day be less than five per cent of the demand =the liabilities and ·two per cent of the time liabilities of such bank in india as shown in the return l'eerr~"1 (cl in sub-section (2) explanatth-for the purposes of this section liabilities shall not include the paid-up capital or the reserves, or any credit balance in the profit and loss account of the bank or ~e amount of any loan taken from the bank, the state bank or any other bank notified by the central government in this behalf  - - - - - (3) if at the close of business on any day before the day fixed for the next retum, the balance held at the bank by any scheduled bank is below the inlmmum prescribed in sub-section (1), such scheduled bank shall be liable to pay to the bank in respect of each such day panel interest at a rate three per cent above the bank rate on the amount by which the balance with the bank falls short of the prescribed minimum, and if on the day fixed for the next return such balance is still below the prescrib~ minimum as' disclosed ,by this return, the rates of penal interest shall be increased to a rate five per cent above the bank rate in respect of that day and each subsequent day on which the balance held at the bank at the close of busines on t,hat day is below the prescribed minimum - (3a) when under the provisions of sub-section (3) penal interest at the increased rate of five per cent above-the bank rate has become payable by a scheduled bank if thereafter on the day fixed for the next return the balance held at the bank is still below the prescribed minimum as disclosed by this return,-  (a) every director and any manager or secretary of the scheduled bank, who is knowingly and wilfully a party to the default, shall be punishable with fine which may extend to five hundred rupees and with a further fine which may extend to five hundred rupees for each subsequent day on which the default continues, and (b) the bank may prohibit the -scheduled bank from receiving after the silid day any fresh deposit, and, if default is made by the scheduled bank in complying with the prohibition referred to in clause (b), every director and officer of the scheduled bank who is knowingly and wilfully a party to such default or who through negligence or otherwise contributes to such default shall in respect of each such default be punishable with fine which may extend to five hundred rupees and with a further fine which may extend to five hundred rupees for each day after the first on which a deposit received in contravention of such prohibition is retained by the scheduled bank explananon-in this sub-section "officer" includes a manager, secretary, branch manager, and branch secretary 46a (1) national '" '" '" '" agricultvral credit (lona termopcrations) fund (2) the amount in the said fund shall be applied by the bank only to the following objects, namely:-'" - - '" - (b) the making to state co-operative banks of loans and apva~es for agricultural purpo'~s, repayable 'on the expiry of fixed periods not being less than fifteen months and not exceeding five, years from the, date of making such loan or advallc'e against 'such sec;:urities as may be specified' in this "'behalf by the bank: " 1   , :  provided that such loans and advances are fully guaranteed as to t~e repayment of the principal and payment of interest by the state government; power of the 58 '(i)' central board to (2) in par!icular and without prejudice to the generality of the reaui~n, foregoing provision, such regulations may provide for all 'or any of the following matters, namely:-- - '" - (g)' the conduct of business of local boards and the delegation to such boards o~ powers and functions;  '" '"   the first schedule(see section 9) 1 the western area shall consist of the states of bombay, madhya pradesh, hyderabad, saurashtra, cutch madhya bharat and bhopal 2 the eastern area shall consist of the states of west bengal, bihar, orissa, assam, the andaman and nicobar islands, manipur, vindhya pradesh and tripura 3 the northern area shall consist of the states of uttar prades~, punjab, delhi, ajmer, jammu and kashmir, himachal pradesh, patiala and the east punjab states union, bilaspur and rajasthan 4 the southern area shall consist of the states of madras, andhra, coorg, mysore and travancore-cochin  -  - - extracts from the banking companies act, 1949 (10 of 1949) - -  - 24 '(1) maintenanc:e of - percentase of aactlo   - - (2) in computing the amount for the purposes of sub-section (1), the deposit required under the proviso to sub-section (2) of section 11 110 be made with the reserve bank by a banking company incorporated outside india and any balance maintained by a banking t::ompany with the reserve bank or its agent or both, including in the case of a scheduled bank the balance required under sub-section (1) of section 42 of the reserve bank of india act, 1934, to be so a of 1934, maintained, shall be deemed to be ca~h maintained,  -  - a bill further to amend the reserve bank of india act, 1934 the president has, in pursuance of clause (1) of article 117 of th~ constitution of india, recommended to lok sabha the introduction of the bill mn kaul, secretary (shri c d deshmukh, minister of finanee) 