 the banking companies (amendment) bill, 1962(as introduced in lok sabra on 24th august, 1962) £,,, ~llament ll8ftar~    " ii __   a billfurther to amend the banking companies act 1949 be, it enacted by parliament in the thirteenth year of the republic of india as follows:-1 this act may be called the banking companies (amendment) short title act, 1962~ of 1949 5 2 in section 11 of the banking companies act, 1949 (hereinafter amen~ent referred to as the principal act) ,_ oflectlon ii (i) in sub-section (2), in clause (b), for the words beginning with "the banking company shall" and ending with "required by clause (a)", the following shall be substituted, namely:-10 "the banking company shall deposit and keep deposited with the reserve bank: either in cash or in the form of unencumbered approved securities, or partly in cash and partly in the form of such securities-(i) an amount which shall not be less than the minimum 15 required by clause (a) j ; and (ii) as soon as may be after the expiration of each calendar year, an amount calculated at twenty per i cent of its profit for that year in respect of all business transacted through its branches in india, as disclosed in the profit and 20 loss account prepared with reference to that year under section 29: "; 1501 (b) ls-l (ii) after sub-section (2), the following sub-section shall be inserted, namely:-"(2a) notwithstanding anything contained in sub-section (2), the central government may, on the recommendation of the reserve bank, and having regard to the adequacy of s the amounts already deposited and kept deposited by a banking company under sub-section (2), in relation to its deposit liabilities in india, declare by order in writing that the provisions of sub-clause (ii) of clause (:b) of sub-section (2) shall not apply to such banking company for such period as ,may 10 be specified in the order"; (iii) in sub-section (3), in clause (ii), the following proviso shall be inserted at the end, namely:- "provided further that in the case of every banking company to which this clause applies and which com- is mences banking business for the first time after the commencement cf the banking companies (amendment) act 1962, th'e value of its paid-up capital shall not be less than five lakhs of rupees" 20 amendment oftection 17 3 in section 17 of the principal act,-(i) in sub-section (1), the words "unless the amount in such fund together with the amount in the share premium account is not less than its paid-up capital," shall be omitted; (ii) after sub-section (1), the following sub-section shall be inserted, namely:-2s "(1a) notwithstanding anything contained in sub·· section (1), the central government may, on the recommendation of the reserve bank and having regard to the adequacy of the paid-up capital and reserves of a banking company in ·relation to its deposit liabilities, declare by order in 30 writing that ,the provisions of sub-section (1) shall not apply to the banking company for such period as may be specified in the order: provided that no such order shall be made unless, at the time it is made, the ai1?-0unt in the reserve fund under sub- 3s section (1), together with the ailipunt in the share premium account is not less than the paid-up capital of the banking company"  amendment of section 18 4 in section 18 of the prin~pal act, for the words "twn per cent of its time liabilities in india and five per cent of its demand liabilities 40 in india,", the words "tm-ee per cent of the total of its time and demand liabilities in india," shall be substituted 5 in section 22 of the principal act, in sub-section (3), in clause amen~ment (c), after the words "a company incorporated outside india that", the ~!  ectjon word'! "the c9rrying on of banking business by such company in india will be in the public interest and that" shall be inserted 5 i in section 24 of the principal act, after sub-section (2), the amendment following sub-section shall be inserted, namely:-of section "(2a) (11) notwithstanding a,nything contained in sub-section at (1) or in sub-section (2), after the expiry of two years from the commencement of the banking companies (amendment) act, ro 1~~  (i) a scheduled bank, in addition to the average daily balance which it is, or may be, required to maintain under section 42 of the reserve bank of india act, 1934, and a of 1934 is 20 (ii) every other banking company, in addition to the cash reserve which it is required to maintain under section 18, shall main,tain in india in cash, ~old or unencumbered approved securities, valued at a price not exceeding the current market price, an amount which shall not at the close of business on any day be less than 25 per cent of the total of its demand and time liabilities in india; 2s 30 3s (b) in computing the amount for the purposes of clause (11)-(i) the deposit required under sub-section (2) of section 11 to be made with the reserve bank by a banking company incorporated outside india, and (ii) any cash or balances maintained in india by a banking company other than a scheduled bank with itself or in current account with the reserve bank or the state bank of india or with any other bank which may be notified in this behalf by the cent~al government, in excess of the aggregate of the cash or balance or both required to be maintained under section 18, and (iii) any balances maintained by a scheduled bank with the resol"ve bank in excess of the balance required to be maintained by it under section 42 of the reserve bank of india act, 1934, and any balances maintained by a scheduled bank with the state bank of india or with any other bank which may be notified in this behalf by the central governmenjt, 40 shall be deemed to be cash maintained in india" 7 in section 35b of the principal act, in sub-section (2), fur the amf en~ment o section figures and word "268, 269, 310, 311 apd ~88", t~e fi~es, warc:ts and ~$b brackets "268 and 269 the proviso to sub-section (3) of section 309, sections 310 and 311 the proviso to section 387, and section 388" shau be substituted 8 in section 51 of the principal act,-amendment of section ,i (i) after the figures "35", the figures and letter "35a" shall 5 be inserted; and (ii) the figures and letter "37, 44b" shall be omitted  statement of objects and reasonstile provisions in the banldng companies act relating to the minimum paid-up capital and reserves of the commercial banks and the amounts which such banks are required to maintain in the form of cash or bank balances or in the form of liquid assets which can be readily utilised for meeting a·ny current obligations are somewhat out of date in view of the changes which have taken place sjnce merch 1949, when the provisions relating to the minimum paid-up capital were brought into force and the very great increase in the deposits and working funds of the commercial banking system in recent years, it is considered desirable that the paid-up capital and reserves, the cash and bank balances, and the overall liquid assets of the commercial banks should be increased the bill seeks to emend the relevant provisions of the act in a suitable manner for these purposes and is intended to strengthen the financial positicn of thp commercial banks generally and to increase the protection which is available to the depositors the opportunity provided by the amendment of the act for these purposes has also been utilised to make a few clarificatory chanlles in some of the other provisions of the act -- the scope and object of the amendments proposed are explained in detail in the notes on the various clauses of the bill  new delhi; morarji desai the 17th august, 1962clause 2-section 11 of the banking companies act which deal~ with the requirements as to the minimum paid-up capital and reserve  provides that the exchangeable value of such capital and reserves in the case of a banking company incorporated in india and havin2 only one offic~ shall be at least fifty thousand rupees in the carp of the exchange banks i~corpcrnted outside india a sum of fifteen lakhs or twenty lakhs as the case may be, dependinj:( on the location of the office of the bank in india, is required to be deposited with thp reserve bank in lieu of paid-up capital clause 2 seeks to raise th, minimum paid-up ~pital in the case of a banking company incorporated in india which applies for a licence in future to five lakhs of rupees and also provides that banking companies incorporated outside india shall 'be required to increase the amounts deposited with the reserve bank of india in lieu of paid-up capital and reserves by the transfer of twenty per cent of the future annual profits of the indian branches until such time as an exemption if any, is granted clause 3-every banking company incorporated in india is required apart from complying with requirements as to the prescribpd minimum paid-up capital and reserves, to transfer twenty pel' cent of their annual profits to the !tatutory reserves shown as such in its balance-sheet until such reserves are equal to paid-up capiml clause 3 seeks to delete from sub-section (1) of section 17 of the act the limiting condition which has t~e effect of exempting banking companies from making any further 'transfers towards reserves if th~ reserves are equal to paid-up capitel, and provides that' the transfers shall continue to be made instead until such time as an exemption if any, is granted: clause 4-seclion 18 of the banking companies act provides tnat non-scheduled banks shall maintain with' themselves or in cultent account balances with the reserve bank or its agencies cash or bank balances to the extent of two per cent of their time &nd five per cent of their demand liabilities as it is 'proposed that a uniform percentage of three per cent of 1911 the liabilities should be prescribed in future in the case of the scheduled banks clause 4 seeks to amend section 18 of the banking companies act so as to provide for, the same uniform requirement in the case of the non-scheduled banks clause 5 seeks to amend section 22 of the banking companies act which deals with the licensing of banks so as to provide that in the ilase of any bank which is incorporated outside india, a licenee may be refused or cancelled, if it appears to the reserve bank that it will 110t be in the public interest to allew the bank to operate or to continue to opelete in india clause 6-section 24 of 'the banking companies act provides for the minimum requirements as to liquidity, that is the percentage of the assets which every bank is required to maintain in the form of cash balances with the reserve bank or its agencies, gold and unencumbered approved securities the minimum amount which is now required to be maintained in the form of such liquid assets is twenty per cent of the total liabilities in india the deposits with the reserve bank, or cash reserves and bank balances in regard to which separate provision is made in section 42 of the reserve bank oi india act, 1934, or section 18 of the banking companies act, 1949, as the case may be, are counted as liquid assets clause 6 seeks to amend section 24 so as to provide that the minimum percentage of the liebilities which is required to be maintained in the form of liquid assets should be twedity-fiv~ instead of twenty and that any deposits with the reserve bank or cash or bank balances, which may be required to be maintained under section 42 of the reserve bank of india act or section 18 of the banking companies act shall not be taken into account for the purposes of section 24 but shall be deemed to be additional to the requirements of this section as the percentage of liabilities which is required to be maintained in the form of reserves or deposits with the reserve bank will vary from three to fifteen in the case of the scheduled banks, while the percenmage of liabilities required to' be maintained in the form of cash or bank balances will be three in the case of the non-scheduled banks, the overall effect of the provisions of the various' sections, namely, section 42 of the reserve bank of india act and sections 18 and 24 of the banking companies act, considered together will be to provide for a minimum liquidity ratio of twenty-eight per cent in the case of the scheduled banks, with provision for raising this percentage to forty, if necessary, and a liquidity ratio, not subject to variations, of twenty-eight per ceilit in the case of the non-scheduled banks, a time-limit of two years is proposed to be prescribed for enabling the existing banks to comply with the amended requirements of the law clause 7 seeks to amend section 35b of the banking companies act, so as to make it clear that notwithstanding the provisions of the proviso to sub-section (3) of section 309 and the proviso to section 387 of the companies act, 1956, as recently amended, the approval of the central government shall not be necessary for determining the remunemtion of the chief executive officers or other directors of banking companies clause 8 provides for a clarificatory amendment of section 51 of the banking companies act, so as ,to make the provisions relating to the suspension of business or the sanctioning of a scheme of arrangement with the creditors and shereholders inapplicable in relation to the state bank of india and its subsidiaries which are governed by _ other statutory provisions in the relevant acts section 35a of the banking companies act, relating to the issue of directions by the reserve bank of india to banking companies generally is, however proposed to be made applicable to the public sector banks extracts from the banking companies act, 1949 (10 of' 1949) - - - - 11 (1) - - - - - (2) in the case of a banking company incorporated outside india- reserves (a) the aggregate value of its paid-up capital and reserves shall not be less than fifteen lakhs of rupees end if it has a place or places of business in the city of bombay or calcutta or both, twenty lakhs of rupees; and (b) the banking company shall deposit and keep deposited with the reserve bank either in cash or in the form of unencumbered approved securities or partly in cash and partly in the form of such securities an amount which shall not be less than the minimum required by clause (a): provided that any such banking company may at any time replace-: (i) any securities so deposited by cuh or by any other unencumbered approved securities, or partly by cash and partly by other such securities, so however, that the total amount deposited is not affected; (ii) any cash so deposited by unencumbered approved securities of an equal value - - , - - - - - - - 17 (1) every banking company incorporated ,in india shall create reserve a reserve fund and unless the amount in such fund together with the fund   amount in the share premium account is not less than its paid-up capital, shall, out of the balance of profit of each year as disclosed in the profit and loss account prepared under section 29 and before any dividend is declared, transfer to the reserve fund a sum equivalent to not less than twenty per cent of such profit - ~ - - - - - - - - - 9 1501 (b) ls-2 cash reserve 18 every banking company, not being a scheduled bank, shall maintain in india, by way of cash reserve with itself or in current account opened with the reserve bank or the state bank of india or any other bank notified by the central government in this behalf or' partly in cash with itself and partly in such account or accounts, a sum equivalent to at least two per cent of iits time liabilities in india arui five per cent of its demand liabilities in india, and shall submit to the reserve bank before the fifteenth day of every month a return showing tl~e amount so held on friday of each week of the preceding month with particulars of its time and demand liabilities in india on each such frid,ay, or, if any such· friday is a public holiday under the negotiable instruments act, 1881 at the close of business on the 26 of 18bi preceding working day expzanation-in this section and in section 24, "liabilities in indig" shall not include-(a) the paid-up capital or the reserves or any credit balance in the profit and loss account of the banking company; (b) any advance taken from the reserve bank or from the state bank of india or from the refinance corporation for industry (private) limited, or from any bank notified by the central gov~rnment ,under clause (c) of the ezplanation to subsection (1) of section 42, of the reserve bank: of india act, 1934 2 of 1934· - ' - - - 22 (1) licenaing of bankldl companies -  -  -  - (3) before granting any licence under this section, the reserve bank may require to be satisfied by i8d inspection of the boob of the company or otherwise that all or any of the following conditions are fulfilled, namely: -i (a) that the company is or will be in a position to pay its present or future depositors in full as their claims accrue; (6) that the 81fairs of the company are not being, or are net likely to be conducted in a manner detrimental to the intereats of its present or future depositors; (c) in the case of a company incorporated outside india that the government or law of the country in which it is incorporated does not discriminate in any way against banking companies registered in india, and that the company complies with all the provisions of this act, applicable to banking companies incorporated outside india - , 358 amendments of provisions reiatina to appointmedu ofmanaginc din:ctors, etc? to be sublect to previous approval of the reserve bank (2) nothing contained in sections 268, 269, 310, 311 end 388 (in so far as section 388 makes the provisions of sections 310 and 311 apply in relation to the manager of a company) of the companies i of i!;s6 act, 1956, shall apply to any matter in respect of which the approvel of the reserve bank has to be obtained under sub-section (1) 51 without prejudice to the provisions of ,the state bank of india application 23 of i9ss· act, 1955, or any other enactment, the provisions of sections 10, 13 ofce~in provlslons to 15, 17, 19 to 21, 23 to 28, 29 [excluding sub-section (3)], 31, 34, to the state 35, 36 [excluding clause (d) of sub-section (1)], 37, 44b, 46 to 48, r~1l;k ~ 50, 52 and 53 shall also apply, so far as may be, to and in relation ot~ ootito the state bank of india or any other banking institution notified fled banks by the central government in this behalf as they apply to and in relation to banking companies: provided that-(a) nothing contained in clause (c) of sub-section (1) of section 10 shall apply to the chainnan of the state bank of india or to a general manager of any subsidiary bank in so far as the said clause precludes him from being a director of, or holding an office in, any institution approved by the reserve bank; (b) nothing contained in section 19 shall apply to the holding by the state bank of india of shares in the capital of any such subsidiary bank; and (c) nothing cont1lined in section 46 shall apply to any officer of the central government or the reserve bank or the state - bank of india, nominated or appointed as director of the state bank of india, or any such subsidiary bank or any other banking institution notified by the central government under this section 38 or 1959 explanation-the expression "subsidiary bank" in this section shall have the same meaning as :in section 2 of the state bank of india (subsidiary banks) act, 1959  -    a bill further to amend the banking companies act, 1949 (shri morarjj desai, minister of firulnce) 