According to Sec. 5 of the Banking Regulation Act, 1949, a banking company means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawn by Cheque, Draft, Order, or otherwise. In short, a banking company means and includes any company which carries on the business or which transacts the business of banking in India. Therefore, any company which is engaged in trade or manufacture, which accepts deposits of money from the public for the purpose of financing its business only, shall not be deemed to carry on the business of banking.
No company can use as part of its name any of the words bank, banker or banking other than a banking company and, at the same time, no company can carry on business of banking in India unless and until it uses at least one of such words as part of its name.
Licensing of Banking Companies:
According to Sec. 22, no company shall carry on banking business in India unless it holds a license issued by the Reserve Bank of India.
If the following conditions are satisfied, the Reserve Bank of India may grant a license:
(i) “That the company is or will be in a position to pay its present and future depositors in full as their claims accrue;
(ii) That the affairs of the company are not being or are not likely to be conducted in a manner detrimental to the interests of its present or future depositor;
(iii) That, in the case of a foreign banking company, the carrying on of a banking business by such company in India will be in the public interest, that the Government or law of the country of its origin does not discriminate against Indian banking companies carrying on business in that country, and that it complies with all the requirements of law applicable to it”.
Cancellation of License
The Reserve Bank of India may cancel a license if:
i) The company ceases to carry on banking business in India;
ii) The company at any time fails to comply with any of the conditions on which the license was granted;
iii) At any time, any of the conditions, on the satisfaction of which the Reserve Bank of India granted the license, has not been fulfilled.
Area of Business of Banking Companies
Sec. 6 of the Banking Regulation Act, 1949, lays down that the following business may also be carried on by a banking company, in addition to the usual banking business:
(a) Acting as agents for any government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent of a company;
(b) Contracting for public and private loans and negotiating and issuing the same;
(c) Selecting, insuring, guaranteeing, underwriting, participating, in managing and carrying out of any issue, public or private, of state, municipal or other loans or of shares, stock, debentures or debenture stock of any company, corporation or association and of lending of money for the purpose of any such issue;
(d) Carrying on and transacting every kind of guarantee and indemnity business;
(e) Managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;
(f) Acquiring or holding and generally dealing with any property, or title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security;
(g) Undertaking and executing trusts;
(h) Undertaking the administration of estates as executor, trustee or otherwise;
(i) Establishing and supporting associations, institutions, funds, trusts, and convenience for the benefit of employees, ex-employees, their dependents and the general public;
(j) Acquiring, constructing, maintaining and altering any building or works necessary for the purpose of the banking company;
(k) Selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing-off or turning into account or otherwise dealing with all or any part of the property and rights of the company;
(l) Acquiring and undertaking the whole or any part of the business of any person or company when such business is of a nature enumerated or described in Sec. 6.
(m) Doing such other things as are necessary for the efficient conduct of the above-named business, such as acquisition, construction, alteration etc. of any building or works necessary or convenient for the purpose of the company; and
(n) Any other form’ of business which the Central Government may notify in the Official Gazette.
As such, other types of business are prohibited by a banking company.
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