intentions, as held by the Gujarat High Court in RBI vs Harisidh Co-op. Bank Ltd. (AIR 1988 Guj 107). In that case the Court considered the power of the Reserve Bank to issue directions for superseding the board of a co-operative bank for securing its proper management and upheld the action taken by the Reserve Bank on the finding that it was without mala fide.
iv. Caution and Advice: Apart from giving directions, the Reserve Bank may also caution or give advice to banking companies. Section 36 of the Banking Regulation Act provides that the Reserve Bank may caution or prohibit banking companies generally or any banking company in particular against any transaction or class of transactions. Further, the Reserve Bank may generally give advice to any banking company.
3.3 ACCEPTANCE OF DEPOSITS
i. As discussed in unit I, the essence of banking business is the acceptance of deposits from the public withdrawable by cheque. [See also the judgement of Madras High Court in Sajjan Bank Pvt. Ltd. vs RBI (AIR 1961 Mad 8)1. The definition of "banking" in Section 5(b) of the Banking Regulation Act acknowledges this position.
ii. Types of Deposits: Banks accept different types of deposits, both time and demand deposits, from the public. While time deposits, like fixed deposits or recurring deposits are repayable after an agreed period, demand deposits, like deposits in currcnt account and savings bank accounts, are repayable on demand, subject to the terms and conditions of the deposits. The period of the deposit and rate of interest applicable to the deposit are matters to be agreed between the depositor and the bank under the terms of the deposit, subject to any directions given by the Reserve Bank in this regard.
iii. Regulation of acceptance of deposits: The Banking Regulation Act does not contain any specific provisions for regulation of acceptance of deposits of banks. However, Section 35A which authorises the Reserve Bank to give directions is wide enough to cover acceptance of deposits. Accordingly, acceptance of deposits may be regulated in the public interest or in the interest of banking policy or in the interests of depositors by issuing directions. The Reserve Bank issues directions from time to time regulating the rates of interest applicable to deposits. The directions may either fix the rates or specify the minimum and/or maximum rate of interest on savings deposits and time deposits for various periods as also for special categories of deposits like senior citizen, NRI deposits. If only minimum and/or maximum rates are specified or no rates are specified, the banks are free to decide their rates accordingly. The directions issued by the Reserve Bank may also stipulate conditions regarding minimum or maximum periods for which deposits may be accepted, reduction of interest payable on premature withdrawal and payment of interest on renewal of overdue deposits.
However, currently RBI prescribes the minimum and maximum period for which deposits can be accepted and prescribes interest rates only in respect of Savings Deposits and NRI deposits leaving others for the individual banks.
iv. Returns on unclaimed deposits: Banks have to file a return every year on their unclaimed deposits under Section 26 of the Banking Regulation Act. The return has to be filed within thirty days of the end of each calendar year in the form and manner prescribed and should cover all deposits not operated for ten years. In the case of fixed deposits the period of ten years starts from the expiry of the period of the deposit.
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3.4 NOMINATION
i. Repayment of Deposits: Section 45ZA of the Banking Regulation Act provides that a depositor or depositors of a banking company (including co-operative banks) may nominate one person in the prescribed manner as nominee to whom the deposit may be returned in the event of death of the sole depositor or depositors. Unless the nomination is varied or cancelled, the nominee is entitled to all the rights of the depositor/s in the event of death of the depositor/s. In the case of minor nominees, there is also a provision to appoint a person to receive the deposit on behalf of the minor. Payment by a bank in accordance with these provisions gives a valid discharge to the bank, but this does not affect the right or claim a person may have against the nominee in respect of the amount received by him. Rule 2 of the Banking Companies (Nomination) Rules, 1985 provides for the procedure and forms for making nomination in respect of deposits with commercial banks. In the case of Co-operative banks, similar provisions are incorporated in the Co-operative Banks (Nomination) Rules, 1985.
ii. Articles in Safe Custody and Safety Lockers: There are also provisions in the Banking Regulation Act for nomination in respect of articles kept in safe custody with banks and safety lockers. Sections 45ZC and 45ZE provide that any person who leaves any article in safe custody and in safety lockers respectively with a banking company, may nominate one person as nominee to receive the article in the event of death of that person. The nomination has to be in the prescribed manner and on return of articles kept in safe custody or removal of contents of locker by nominees as provided, the bank gets a valid discharge. Rules 3 and 4 of the Banking Companies (Nomination)
Rules, 1985, and also the Rules 3 and 4 of the Co-operative Banks (Nomination) Rules, 1985 deal with the form and procedure applicable to articles in safe custody and safety lockers respectively in the case of banking companies and co-operative banks.
3.5 LOANS AND ADVANCES
i. The definition of "banking' in Section 5(b) of the Banking Regulation Act indicates that acceptance of deposits may be for lending or investment. Thus, lending or making of loans and advances is a core business of a banking company. Lending may be for short term or long term, on secured or unsecured basis and for different purposes.
ii. Regulation of Loans and Advances
(a) The Reserve Bank is empowered under Section 21 of the Banking Regulation Act to issue directions to control advances by banking companies. Such directions may be issued to banking companies generally or to any particular banking company. The Reserve Bank may determine the policy in relation to advances and issue directions when it is satisfied that it is necessary to give directions:
(i) In public interest (ii) In the interests of depositors (iii) In the interests of banking policy.
(b) The directions given by the Reserve Bank are binding on banking companies, and may be on one or more of the following matters:
(i) Purpose for which advances may or may not be made.
(ii) Margins, to be maintained in respect of secured advances.
(iii) Maximum amount of advances or other financial accommodation which may be made to any company, firm, association of persons or individual. The policy on these matters may be specified having regard to the paid-up capital, reserves and deposits of the banking company and other relevant considerations.