CAIIB Paper 4 BRBL Comprehensive Study Capsule

Module A: Regulations and Compliance

Legal Framework of Regulation of Banks

• Business of Banking Definition & Governance:

  • Banking in India is primarily governed by the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934.
  • Definition of Banking: Defined under Section $5(b)$ of the Banking Regulation Act, 1949 as: "Banking means the accepting for the purpose of lending or investing, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise."
  • Section $49A$ of the Banking Regulation Act: Prohibits any person other than a banking company, the Reserve Bank of India (RBI), the State Bank of India (SBI), or any other banking institution/firm/person notified by the Central Government from accepting deposits withdrawable by cheque.
  • Acceptance of Public Deposits by NBFCs: Regulated by the RBI under the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998.
  • Licensing Requirement: Under Section $22$ of the Banking Regulation Act, 1949, it is mandatory to obtain a licence from the RBI to commence or carry on the business of banking in India.
  • Use of the Word "Bank": Under Section $7$ of the Act, every banking company must use the word "bank" as part of its name. No company other than a banking company can use the words "bank", "banker", or "banking" as part of its name.

• Constitution of Banks in India:

  • Banks in India fall into three main legal categories:
  • Body corporate constituted under a special statute.
  • Company registered under the Companies Act, 1956 (or Companies Act, 2013) or a foreign company.
  • Co-operative society registered under a Central or State enactment.
  • Public Sector Banks (other than SBI): Constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
  • State Bank of India (SBI): Constituted under the State Bank of India Act, 1955. Its associate/subsidiary banks were constituted under the State Bank (Subsidiary Banks) Act, 1959.
  • Regional Rural Banks (RRBs): Constituted under the Regional Rural Banks Act, 1976. Governed by their specific creating statutes as well as select provisions of the BR Act, 1949 and RBI Act, 1934.
  • Private Sector Banks / Foreign Banks: Most private sector banks (including Micro and Small Finance Banks) are companies constituted under Section $3$ of the Companies Act, 1956 or incorporated under the Companies Act, 2013. Foreign banks are foreign companies constituted under foreign statutes and treated as such under Section $2(42)$ of the Companies Act, 2013.
  • Co-operative Banks: Conduct ordinary banking business on a co-operative basis. Multi-State co-operative banks are governed by the Multi State Cooperative Societies Act (Central Act), while single-state co-operative banks are governed by their respective State Co-operative Societies Acts.

• Reserve Bank of India Act, 1934:

  • Enacted to constitute the RBI; came into force on March 6, 1934.
  • Central Board of Directors Composition: General superintendence and direction are vested in the Central Board of Directors consisting of:
  • One Governor and not more than four Deputy Governors appointed by the Central Government.
  • Four directors nominated by the Central Government (one from each of the local boards).
  • Ten directors nominated by the Central Government.
  • Two government officials nominated by the Central Government.
  • Scheduled Bank Definition: Defined in the RBI Act as a bank included in the Second Schedule of the Reserve Bank of India Act, 1934, satisfying the criteria mentioned under Section $42(6)(a)$ of the statute.
  • Lender of Last Resort: Under Sections $17$ and $18$ of the RBI Act, 1934, RBI acts as the lender of last resort, offering liquidity support to banks or financial institutions facing financial difficulty or extreme liquidity/risk distress.
  • Finance (No. 2) Act 2019 (Chapter VI - Amendments to RBI Act w.r.t. NBFCs, Effective August 9, 2019):
  • Net Owned Funds (NOF) Limit: Enhanced to $\text{Rs. } 100\,\text{crores}$ from the earlier limit of $\text{Rs. } 2\,\text{crores}$.
  • Sections $45\text{-ID}$ and $45\text{-IE}$: RBI empowered to control management of a regulated NBFC by either replacing directors or superseding its board.
  • Section $45\text{-MAA}$: RBI empowered to remove or debar an auditor from auditing any RBI-regulated entity for up to $3\,\text{years}$ if the auditor fails to comply with RBI directions.
  • Section $45\text{-MBA}$: RBI empowered to frame schemes for amalgamation, reconstruction, or splitting of an NBFC into viable and non-viable businesses.
  • Section $45\text{-NAA}$: RBI empowered to direct an NBFC to furnish statements/information regarding group companies and order inspection or audit of the same.

• Banking Regulation Act, 1949:

  • Originally passed as the Banking Companies Act, 1949 (came into force March 16, 1949); name changed to Banking Regulation Act, 1949 on March 1, 1966. Applicable to Jammu and Kashmir since 1956.
  • Amended in 1965 to extend applicability to co-operative banks. Amended in 2020 to bring co-operative banks under full supervision of the RBI.
  • Non-Applicability: The BR Act does not apply to:
  • Primary Agricultural Credit Societies (PACS).
  • Co-operative societies whose primary object and principal business is providing long-term finance for agricultural development.
  • Banking Regulation (Amendment) Act, 2017: Inserted Sections $35\text{-AA}$ and $35\text{-AB}$, authorizing RBI to direct banking companies to initiate insolvency resolution processes for defaults under the Insolvency and Bankruptcy Code, 2016 (IBC).
  • Annual Financial Inspection (AFI): RBI derives its power to conduct AFI of banking companies under Section $35$ of the BR Act.
  • Depositor Education and Awareness Fund (DEAF): Introduced via Amending Act (2012) under Section $26A$ to take over inoperative deposit accounts unclaimed or not operated for $10\,\text{years}$ or more, transferred within $3\,\text{months}$ from the expiry of the $10\text{-year}$ period.
  • Primary Objectives of the BR Act:
  • Provide specific legal framework for banking business in India.
  • Prevent bank failures by prescribing minimum capital requirements.
  • Ensure balanced growth and development of banking companies.
  • Confer specific supervisory and regulatory powers on the RBI.
  • Safeguard the interests of depositors.

• Reserve Bank as Central Bank, Regulator, and Supervisor:

  • Constituted under Section $3$ of the RBI Act, 1934 to manage currency and operate the credit/currency system.
  • Original Responsibilities under RBI Act: Regulate bank note issue, keep reserves for monetary stability, and operate the currency/credit system.
  • Regulatory & Supervisory Powers under BR Act, 1949: Power to issue banking licenses, regulate voting rights/shareholding, appoint/remove board/management personnel, issue directions, inspect and supervise banks, conduct audits, collect and furnish credit information, enforce moratoriums/amalgamations/winding up, and impose penalties.

• Government as a Regulator of Banks:

  • While RBI is the primary regulator, the Central Government (GOI) holds extensive statutory powers under the RBI Act and BR Act:
  • GOI appoints and can remove the Governor and Central Board members of RBI (GOI is sole shareholder of RBI).
  • Section $10B$ & $36AA$ Appeals: Appeals against RBI orders removing managerial personnel lie with the GOI.
  • Section $22$ & $14A$ Appeals: Appeals against cancellation of banking license or refusal of certificate regarding floating charge on assets lie with the GOI.
  • Section $4$ & $53$ Suspensions/Exemptions: GOI may permit suspension of operations or grant exemptions from BR Act provisions on RBI recommendation.
  • Section $6(1)$ Notifications: GOI notifies additional forms of business that banking companies may engage in.

• Control Over Co-operative Banks:

  • Dual control historically existed between State Governments (formation, registration, management) and RBI (licensing, banking business regulation) since Section $56$ was added in 1965.
  • Banking Regulation (Amendment) Act, 2020 (Effective June 26, 2020):
  • Expanded RBI powers over co-operative banks, including board supersession under Section $36AAA$ as amended.
  • Allowed RBI to frame revival plans and restructure co-operative banks.
  • Permitted co-operative banks to raise capital via public/private issues, preferential shares, debentures, etc. (without altering Registrar of Co-operative Societies powers under State laws).
  • RBI empowered to order winding up of co-operative banks registered under DICGC Act.

Control Over Organisation of Banks

• Licensing of Banking Companies:

  • Requirement: Mandatory licence from RBI under Section $22$ of the BR Act, 1949 before commencing or carrying on banking business in India.
  • RBI Discretion: RBI has full discretion based on relevant germane material. Courts intervene only if decisions are extraneous or unreasonable.
  • Higher Capital Stipulation: Though Section $11$ sets minimum capital/reserves, RBI may stipulate higher capital requirements before granting a licence under Section $22$.
  • Foreign Bank Licensing: Must satisfy RBI regarding adequate prudential supervision in home country, obtain approval from home regulator, and undergo evaluation of economic/political relations, financial soundness, global/home ranking, ratings, global presence, and non-discrimination against Indian banks.
  • Small Finance Banks (SFBs): First guidelines issued in 2014. Registered as public limited companies under Companies Act, 2013; licensed under Section $22$ of BR Act, 1949; governed by BR Act, 1949 and RBI Act, 1934.
  • Cancellation of Licence: Governed by Section $22(4)$ of BR Act. An aggrieved bank may appeal to the Central Government within $30\,\text{days}$ from the date the decision is communicated.
  • Opening Places of Business (Section $23$ BR Act): Prior RBI permission is mandatory to open a new place of business in India, change the location of an existing place of business outside the same city/town/village, or open a new place of business outside India.

• Paid-Up Capital and Reserves (Section $11$ BR Act):

  • Foreign Banks (Section $11(2)$): Must deposit and keep deposited with RBI $\text{Rs. } 15\,\text{lakhs}$ (or $\text{Rs. } 20\,\text{lakhs}$ if it has a place of business in Mumbai, Kolkata, or both). Capital can be kept in cash or unencumbered approved securities or both. In addition, $20\%$ of annual profits from Indian operations must be deposited with RBI.
  • Indian Banks: Aggregate paid-up capital and reserves shall not be less than $\text{Rs. } 5\,\text{lakhs}$ if places of business are in more than one State, and $\text{Rs. } 10\,\text{lakhs}$ if any place of business is in Mumbai, Kolkata, or both.
  • Capital Ratios (Section $12(1)$): Subscribed capital must be at least $\frac{1}{2}$ ($50\%$) of Authorized capital; Paid-up capital must be at least $\frac{1}{2}$ ($50\%$) of Subscribed capital. Any capital increase must achieve this proportion within maximum $2\,\text{years}$ as allowed by RBI.

• Shareholding & Corporate Control in Banking Companies:

  • Voting Rights Ceiling (Section $12(2)$ BR Act): No shareholder can exercise voting rights on poll in excess of $10\%$ of total voting rights of all shareholders.
  • Prior Approval Threshold: Mandatory prior RBI approval required for any applicant acquiring $5\%$ or more of the share capital of a banking company.
  • Reporting: Banking companies must submit reports to RBI regarding shareholding particulars of Chairman, MD, or CEO.
  • Commission, Brokerage, Discount Ceiling (Section $13$ BR Act): Ceiling of $2.5\%$ of the issue price of shares on commission, brokerage, discount, or remuneration paid on sale of shares.
  • Payment of Dividend Norms:
  • Payable only out of current year's Net Profit.
  • Bank must have CRAR of at least $9\%$ for preceding two completed years and the accounting year of declaration, with Net NPA less than $7\%$.
  • If CRAR is at least $9\%$ in current year only, dividend can be declared if Net NPA is less than $5\%$.
  • Maximum Dividend Payout Ratio shall not exceed $40\%$.

• Board of Directors & Management:

  • Qualifications (Section $10A$ BR Act): At least $51\%$ of directors must have special knowledge or practical experience in accountancy, agriculture, rural economy, banking, co-operation, economics, finance, law, or small-scale industry. At least two directors must specifically represent agriculture/rural economy/co-operation/small-scale industry.
  • Substantial Interest Restriction (Section $10A(2)(b)$): Directors cannot have a substantial interest in, or be an employee/manager/managing agent of, any commercial/industrial firm. Substantial interest means holding beneficial interest (singly or with spouse/minor child) exceeding $\text{Rs. } 5\,\text{lakhs}$ or $10\%$ of paid-up capital, whichever is lower.
  • Tenure: Directors cannot hold office for more than $8\,\text{years}$ continuously (does not apply to Chairman or Whole-Time Director).
  • Chairman & Managing Director (Section $10B$): Every banking company must have a whole-time or part-time Chairman/MD appointed from directors. Tenure shall not exceed $5\,\text{years}$ at a time (eligible for re-election).
  • Section $10B(4)$ Qualifications: Must have special knowledge/practical experience in banking, SBI/subsidiary/FI working, or financial/economic/business administration.
  • RBI Powers over Management: RBI can remove Chairman/MD if not fit and proper, or appoint an eligible person under Section $10BB$ if the office falls vacant.
  • Employment Restrictions (Section $10$): Prohibits managing agents. Restricts employment of insolvents, persons convicted of moral turpitude, persons remunerated via commission/profit share, or persons with excessive remuneration.
  • Control over Management (Section $36AA$ & $36ACA$): RBI can remove any director/officer (appeal to GOI within $30\,\text{days}$; contravention penalty $\text{Rs. } 250/\text{day}$). Under Section $36ACA$, RBI can supersede the Board of a banking company for $6\,\text{months}$ (extendable up to $12\,\text{months}$) and appoint an Administrator.

• Corporate Governance:

  • OECD Principles (2004): Effective framework, shareholder rights protection, equitable treatment, timely disclosure/transparency, and board responsibilities/accountability.
  • Basel Committee Guidance (Feb 2006): Sound corporate governance practices tailored to banking institutions.

Regulation of Banking Business

• Powers to Issue Directions, Caution, and Advice:

  • Directions under Section $21$ & $35A$: Section $21$ regulates advances (rates, terms, margins). Section $35A$ gives broad statutory power to issue binding directions to banking companies in public/depositor interest. Sections $35AA$ and $35AB$ empower RBI to direct insolvency proceedings for bad loans.
  • Caution & Advice (Section $36(1)(a)$): RBI may caution/prohibit banks against specific transactions or offer general advice.

• Acceptance of Deposits & Unclaimed Deposits:

  • DICGC Insurance: Under the DICGC (Amendment) Act 2021, deposits up to $\text{Rs. } 5\,\text{lakhs}$ per depositor are insured and payable within $90\,\text{days}$ if a bank is placed under moratorium.
  • Unclaimed Deposits Return (Section $26$): Annual return filed within $30\,\text{days}$ of calendar year-end for all accounts inoperative for $10\,\text{years}$.
  • Depositor Education and Awareness Fund (DEAF - Section $26A$): Inoperative balances unclaimed for $10\,\text{years}$ or more must be transferred to DEAF within $3\,\text{months}$ after the $10\text{-year}$ period. Interest payable by banks on transferred amounts: $4\%$ p.a. up to June 30, 2018; $3.5\%$ p.a. from July 1, 2018 to May 10, 2021; $3\%$ p.a. w.e.f. May 11, 2021 onwards.
  • Nomination Facilities (Sections $45ZA$ to $45ZE$): Covers deposit accounts ($45ZA$), safe custody articles ($45ZC$), and safety lockers ($45ZE$).

• Loans and Advances Restrictions (Section $20$ & $20A$):

  • Banks cannot grant loans against the security of their own shares.
  • Banks cannot grant loans/advances to or on behalf of their own directors.
  • Section $20A$: Remission of any debt due from a director requires prior RBI permission.
  • Selective Credit Control (SCC): Imposed on advances against sensitive essential commodities (food grains, pulses, oils, sugar, cotton, etc.).

• Interest Rate Regulation & Benchmark Frameworks:

  • Differential Term Deposit Rates: SCBs/SFBs can offer differential rates on single term deposits of $\text{Rs. } 2\,\text{crores}$ and above; RRBs on $\text{Rs. } 15\,\text{lakhs}$ and above.
  • Base Rate: Replaced BPLR w.e.f. July 1, 2010.
  • MCLR (Marginal Cost of Fund based Lending Rate): Effective April 1, 2016. Components: Marginal cost of funds, Negative carry on CRR ($\frac{\text{Required CRR} \times \text{Marginal Cost}}{1 - \text{CRR}}$), Operating costs, Tenor premium. Maturities published: Overnight, 1-month, 3-month, 6-month, 1-year.
  • External Benchmark Based Lending: Effective Oct 1, 2019 for retail/MSE loans; April 1, 2020 for Medium Enterprises. Benchmarks: RBI Repo Rate, 3-Month T-Bill yield, 6-Month T-Bill yield, or other FBIL benchmarks.

• Internet Banking Guidelines:

  • Board-approved security policy, IS Audit, logical access controls, PKI (Public Key Infrastructure), periodic penetration testing, encrypted/decrypted message record keeping.
  • Cooperative Banks Criteria for Transactional Internet Banking: CRAR $\ge 10\%$, Net Worth $\ge \text{Rs. } 50\,\text{crores}$, Gross NPA $< 7\%$, Net NPA $\le 3\%$, Net profit in preceding year and at least 3 out of 4 preceding years, no CRR/SLR defaults, no monetary penalties in preceding 2 years.

• Money Market Instruments:

  • Certificate of Deposit (CD): Issued by SCBs, RRBs, SFBs, and AIFIs. Primary market issue in demat form only. Minimum denomination: $\text{Rs. } 5\,\text{lakhs}$ (and multiples thereof). Minimum tenor: $7\,\text{days}$; Maximum tenor: $1\,\text{year}$. Issued on $T+1$ basis. Buyback allowed only after $7\,\text{days}$ from issue.
  • Commercial Paper (CP): Issued by Companies, NBFCs, AIFIs, Co-operatives, Trusts, LLPs (net worth $\ge \text{Rs. } 100\,\text{crores}$). Form of promissory note at discount in demat form. Minimum denomination: $\text{Rs. } 5\,\text{lakhs}$. Underwriting/co-acceptance not permitted. Options (call/put) not permitted. Total issuance $\ge \text{Rs. } 1000\,\text{crores}$ in a calendar year requires ratings from at least 2 SEBI-registered CRAs. Minimum rating: 'A3'. Buyback allowed after $30\,\text{days}$ from issue.

• Reserve Bank - Integrated Ombudsman Scheme 2021:

  • Integrates Banking Ombudsman Scheme 2006, NBFC Ombudsman Scheme 2018, and Digital Transactions Ombudsman Scheme 2019. Covers Non-Scheduled Primary Co-operative Banks with deposits $\ge \text{Rs. } 50\,\text{crores}$.
  • Centralized Receipt and Processing Centre (CRPC) established at RBI Chandigarh.
  • Principal Nodal Officer rank: General Manager in PSBs or equivalent.
  • Appellate Authority: Executive Director in-charge of Consumer Education and Protection Dept, RBI. Appeal timeline: $30\,\text{days}$.
  • Bank compliance timeline: Within $1\,\text{month}$ of receiving complainant's acceptance letter (complainant has $15\,\text{days}$ to accept Award).

• Statutory Reserve & Liquidity Requirements:

  • Reserve Fund (Section $17(1)$ BR Act): Mandatory transfer of at least $20\%$ of profit each year before dividend declaration (RBI raised requirement to $25\%$ net profit after tax w.e.f. March 31, 2001).
  • Cash Reserve Ratio (CRR): Governed by Section $42$ RBI Act for Scheduled Banks and Section $18$ BR Act for Non-Scheduled Banks.
  • Minimum daily maintenance requirement: $90\%$ of required CRR on all days in a fortnight.
  • Penal interest for shortage: $3\%$ above Bank Rate for first fortnight; $5\%$ above Bank Rate if shortage continues in subsequent fortnight.
  • Non-scheduled banks: Cash reserve of at least $3\%$ of DTL as of last Friday of second preceding fortnight held with self or in current account with RBI.
  • Statutory Returns: Form A (SCBs, RRBs, SFBs, PBs, LABs), Form B (Scheduled Co-op Banks), Form I (Non-Scheduled Co-op Banks).
  • Statutory Liquidity Ratio (SLR - Section $24$ BR Act): Maintained up to maximum $40\%$ of NDTL as on last Friday of second preceding fortnight. Penal interest for shortfall: $3\%$ above Bank Rate; $5\%$ above Bank Rate for recurring default on succeeding alternate Friday. Returns: Form VIII (SCBs/RRBs/SFBs/PBs/LABs), Form I (Co-operative Banks).

Returns, Inspection, Winding Up, Mergers & Acquisitions

• Annual Accounts, Balance Sheet & Audit:

  • Preparation (Section $29$ BR Act): Annual accounts and balance sheet prepared as of March 31. Signed by Manager/Principal Officer and at least 3 directors (Indian banks) or Manager/Agent of principal office in India (foreign banks).
  • SEBI Listing Rules: Listed banks must publish unaudited quarterly results after limited review under Clause $41$ of SEBI Listing Agreement.
  • Publication & Submission: Published in circulation newspaper within $6\,\text{months}$. Three copies submitted to RBI within $3\,\text{months}$. Copies submitted to Registrar of Companies under Section $129$ of Companies Act, 2013.
  • Auditors & Special Audit (Section $30$ BR Act): Special Audit ordered under Section $30(1B)$ by RBI in public/depositor interest; expenses borne by the bank.

• Statutory Returns Summary:

  • Return on Liquid Assets (Section $24(3)$): Submitted within $20\,\text{days}$ of month-end (Rule $13A$).
  • Monthly Assets & Liabilities Return (Section $27$): Submitted before close of succeeding month (Rule $14A$).
  • Return of Assets in India (Section $25(1)$): Quarterly return submitted within $1\,\text{month}$ of quarter-end.
  • Return of Unclaimed Deposits (Section $26$): Submitted within $30\,\text{days}$ of calendar year-end.
  • Cash Reserve Return for Non-Scheduled Banks (Section $18(1)$): Submitted before $20\text{th}$ day of every month.

• Preservation of Records:

  • Banking Companies (Period of Preservation of Records) Rules, 1985: $5\text{ to } 8\,\text{years}$.
  • Prevention of Money Laundering Act (PMLA) 2002 / PML Rules 2005: Maintain transaction records for $5\,\text{years}$ from transaction date; maintain client identity records for $5\,\text{years}$ after business relationship ends or account is closed.

• Board for Financial Supervision (BFS) & Daksh:

  • BFS: Established Nov 1994. Chairman: RBI Governor. Vice-Chairman: Deputy Governor in-charge of supervision. Includes 4 directors from RBI Central Board. Meets monthly; quorum is 3 members.
  • Daksh: RBI's advanced web-based supervisory monitoring application for Supervised Entities (SEs).

• Acquisition of Undertakings & Amalgamations:

  • Acquisition (Section $36AE$ BR Act): GOI can acquire bank undertakings if bank fails to comply with directions under Section $21$ or $35A$ or is managed detrimentally.
  • Voluntary Amalgamation (Section $44A$ BR Act): Resolution passed by 2/3rd value majority of shareholders of each company present in person/proxy, sanctioned by RBI.
  • Amalgamation by Government: Under Section $396$ of Companies Act after consulting RBI.
  • Moratorium & Reconstruction/Amalgamation (Section $45$ BR Act): RBI applies to GOI for moratorium order. Scheme prepared by RBI becomes binding once sanctioned by GOI.

• Winding Up of Banks (Sections $38$, $38A$, $44$ BR Act):

  • High Court orders compulsory winding up if bank is unable to pay debts or on RBI application under Section $37$/$38$.
  • Court Liquidator (Section $38A$): Attached to High Court. Makes preliminary report within $2\,\text{months}$.
  • Priority Payments: Preferential payments under Section $327$ Companies Act 2013, then savings bank depositors up to $\text{Rs. } 250$, then other depositors up to $\text{Rs. } 250$, then general creditors.
  • Voluntary winding up (Section $44$) permitted only with RBI certificate of debt-paying ability.

• Penalties under RBI Act & BR Act:

  • RBI Act Penalties: False statements: Imprisonment up to $3\,\text{years}$ and fine. Non-production of books/failure to give information: Fine up to $\text{Rs. } 100,000$ per offence plus $\text{Rs. } 5,000/\text{day}$ for continuing offences.
  • BR Act Penalties (Section $46$): False statements/willful omission: Imprisonment up to $3\,\text{years}$ and fine up to $\text{Rs. } 1\,\text{crore}$ or both. Refusal to produce books: Fine up to $\text{Rs. } 20\,\text{lakhs}$ per offence plus $\text{Rs. } 50,000/\text{day}$ for continuing refusal. Other defaults: Fine up to $\text{Rs. } 1\,\text{crore}$ or double the amount involved, whichever is higher.

Public, Private, Regional Rural, Differentiated, Co-operative & Local Area Banks

• State Bank of India (SBI):

  • Established under Section $3$ of SBI Act, 1955. Corporate Centre in Mumbai.
  • Board: Chairman, max 4 Managing Directors (appointed by GOI for max $5\,\text{years}$), and other directors. Termination by GOI requires $3\,\text{months}$ notice after consulting RBI.
  • Acts as RBI agent where RBI has no branch.
  • Annual accounts closed as on March 31; submitted within $3\,\text{months}$.
  • Five associate banks and Bharatiya Mahila Bank merged with SBI w.e.f. April 1, 2017.

• Regional Rural Banks (RRBs):

  • Established under RRB Act, 1976. Shareholding ratio: Central Government $50\%$, Sponsor Bank $35\%$, State Government $15\%$.
  • Total number of RRBs reduced to $43$ via ongoing amalgamation roadmaps in consultation with NABARD.

• Nationalized Banks (Other Public Sector Banks):

  • Constituted under Bank Nationalization Acts 1970 & 1980. GOI must hold at least $51\%$ equity at all times. Non-GOI shareholder voting rights capped at $1\%$.
  • Board meets at least 6 times a year and at least once per quarter; quorum is 1/3rd of directors. Whole-time Executive Directors increased from 3 to 4 in Aug 2019.
  • Section $51$ BR Act: Defines applicability of BR Act provisions to PSBs/RRBs.

• Private Sector Banks & Differentiated Banks:
  • Private Sector Banks: Currently 21 operating in India (classified into Old and New Private Banks).
  • Payments Banks (Nachiket Mor Committee 2013 Guidelines):
  • Maximum end-of-day balance per individual customer: $\text{Rs. } 200,000$ (revised from $\text{Rs. } 100,000$).
  • Can issue debit cards but not credit cards.
  • Minimum paid-up equity capital: $\text{Rs. } 100\,\text{crores}$. Leverage ratio $\ge 3\%$ (outside liabilities $\le 33.33\times \text{Net Worth}$).
  • Promoter minimum initial contribution: At least $40\%$ for first $5\,\text{years}$.
  • SLR Investment: Minimum $75\%$ of demand deposit balances in SLR-eligible G-Secs/T-Bills up to $1\,\text{year}$ maturity; max $25\%$ in current/term deposits with other SCBs.

• Small Finance Banks (SFBs):

  • Promoters: 10 years experience in banking/finance. Promoter initial contribution: At least $40\%$, brought down to $26\%$ within $12\,\text{years}$.

  • Priority Sector Lending (PSL) target: $75\%$ of Adjusted Net Bank Credit (ANBC). At least $50\%$ of loan portfolio must comprise loans up to $\text{Rs. } 25\,\text{lakhs}$.

  • AD Category-I eligibility (RBI Circular Aug 8, 2022): Must have completed 2 years as AD Category-II, included in Second Schedule, Net worth $\ge \text{Rs. } 500\,\text{crores}$, CRAR $\ge 15\%$, Net NPA $\le 6\%$ in previous 4 quarters, profitable in preceding 2 years.

  • On-Tap Licensing Policy: Minimum net worth $\text{Rs. } 200\,\text{crores}$ ($\text{Rs. } 100\,\text{crores}$ for UCBs transiting to SFB, scaled up to $\text{Rs. } 200\,\text{crores}$ in $5\,\text{years}$). Scheduled status given immediately upon commencement.

  • Local Area Banks (LABs): Introduced in 1996. Area of operation: Max 3 geographically contiguous districts. Registered as public limited companies or partnerships; licensed under BR Act 1949. Only 2 exist today (Coastal LAB Ltd and Krishna Bhima Samruddhi LAB Ltd).

Non-Banking Financial Companies (NBFCs)

• Definition & Core Provisions:

  • Registered under Companies Act, 1956/2013; regulated by Department of Non-Banking Supervision (DNBS) of RBI under Section $45\text{-IA}$ of RBI Act, 1934.
  • Excluded: Primary agricultural/industrial activities, goods purchase/sale, immovable property construction.
  • Exempted from RBI Registration due to dual regulation: VCFs/Merchant Bankers (SEBI), Insurance Companies (IRDAI), Nidhi Companies (Sec $620A$ Companies Act), Chit Companies, Housing Finance Companies (NHB).
  • Net Owned Fund (NOF) Requirement: $\text{Rs. } 2\,\text{crores}$ ($\text{Rs. } 200\,\text{lakhs}$) generally.
  • Capital Adequacy: Minimum Capital Ratio (Tier I + Tier II) = $15\%$. Minimum Tier I Capital = $10\%$ ($12\%$ for Gold Loan NBFCs whose gold loans comprise $\ge 50\%$ of financial assets).

• Revised Scale-Based Regulatory Structure (SBR - 4 Layers):

  • Base Layer (BL): Non-deposit taking NBFCs below asset size $\text{Rs. } 1000\,\text{crores}$, NBFC-P2P, NBFC-AA, NOFHC, and NBFCs without public funds/customer interface.
  • Middle Layer (ML): All deposit-taking NBFCs (NBFC-D) regardless of size, non-deposit NBFCs $\ge \text{Rs. } 1000\,\text{crores}$, SPDs, IDF-NBFCs, CICs, HFCs, and IFCs.
  • Upper Layer (UL): Specifically identified by RBI based on scoring parameters.
  • Top Layer (TL): Populated only if RBI perceives substantial systemic risk from specific Upper Layer NBFCs.

• NPA Classification & Regulatory Norms:
  • Asset classification norm harmonized to overdue period of $> 90\,\text{days}$.

• IPO Funding Ceiling: Maximum $\text{Rs. } 1\,\text{crore}$ per borrower for financing IPO subscriptions.
• Credit Concentration Limits: Merged single exposure limit: $25\%$ for single borrower/party and $40\%$ for single group (additional $5\%$ single / $10\%$ group allowed for infrastructure exposure).
• Corporate Governance: Mandated Risk Management Committee (RMC), Board-approved policy on loans to directors/relatives, independent Chief Compliance Officer, and Core Banking Solution (CBS) for NBFCs with $10$ or more branches.
• Co-Lending Model (CLM): Banks can co-lend with registered NBFCs/HFCs based on prior agreement. NBFCs must retain minimum $20\%$ share of individual loans on their books.

Financial Sector Reforms & FSDC

• Narasimham Committee Recommendations:

  • Committee 1 (1991 - Committee on Financial Systems): Called for reduction in CRR and SLR (which totaled $53.5\%$ then) terming it a "tax on banking", criticized directed priority credit, recommended removing interest subsidies, and highlighted staff/branch inefficiencies.
  • Committee 2 (1998 - Committee on Banking Sector Reforms): Recommended strengthening Capital Adequacy (Risk Weights), stringent Asset Quality/IRAC norms, elimination of priority interest subsidies, setting up Asset Reconstruction Companies (ARCs), and strict disclosure rules.

• Key Financial Sector Reforms:

  • Competition & Market Forces: Operational autonomy, public ownership reduction up to $49\%$, FDI/FPI entry, differentiated bank licenses, deregulation of interest rates, transition to CBS, LAF/SDF liquidity tools, and OMO/MSS operations.
  • Prudential & Legal Measures: SLR reduced to $18\%$ and CRR to $4.50\%$ (Nov 2022 levels), introduction of CAMELS rating, Lok Adalats, DRTs, SARFAESI Act 2002, CIBIL, CCIL, IBC 2016, and EASE (Enhanced Access & Service Excellence) agenda.

• Financial Stability and Development Council (FSDC):

  • Established in Dec 2010; chaired by the Union Finance Minister. Non-statutory body.
  • Composition: Finance Minister (Chairman), Heads of Regulators (RBI, SEBI, IRDAI, PFRDA), Finance Secretary/Secretary DEA, Secretaries of DFS, Revenue, MeitY, Chairman IBBI, and Chief Economic Adviser.
  • Sub-Committees/Wings: FSDC Sub-Committee (Chaired by Governor RBI), Inter-Regulatory Technical Group (IR-TG, headed by ED Financial Stability RBI), Inter-Regulatory Forum for Monitoring Financial Conglomerates (IRF-FC, headed by DG RBI), Macro Financial Monitoring Group (MFMG, chaired by CEA), and Early Warning Group (chaired by DG RBI).

Module B: Important Acts/Laws & Legal Aspects of Banking Operations – Part A

The Prevention of Money Laundering Act, 2002

• Offence & Punishment of Money Laundering:

  • Offence (Section $3$): Directly or indirectly attempting, knowingly assisting, or being a party to concealment, possession, acquisition, use, or projecting/claiming proceeds of crime as untainted property.
  • Punishment (Section $4$): Rigorous imprisonment for a term between $3\,\text{years}$ and $7\,\text{years}$, and liable to fine.

• Obligations of Reporting Entities (Section $12$ & $12AA$):

  • Record Maintenance: Maintain transaction records for $5\,\text{years}$ from the transaction date. Maintain client identity and beneficial ownership records for $5\,\text{years}$ after the business relationship ends or account is closed.
  • Enhanced Due Diligence (Section $12AA$): Verify client identity via Aadhaar authentication, examine ownership/financial position/source of funds, and record transaction purpose. Increased scrutiny for suspicious transactions. Retention: $5\,\text{years}$ from transaction date.
  • Protection (Section $14$): No civil or criminal proceedings lie against a reporting entity or its officers for furnishing information to the Director.

• PML Rules 2004 Reporting Timelines:

  • Monthly reports (CTR, NPO, Cross-border wire transfers) submitted to Director FIU-IND by the $15\text{th}$ day of the succeeding month.
  • Counterfeit Currency Reports (CCR) submitted monthly by the $15\text{th}$ day.
  • Suspicious Transaction Reports (STR) submitted within $7\,\text{working days}$ of forming satisfaction.
  • Immovable property transactions ($\ge \text{Rs. } 50\,\text{lakhs}$) reported quarterly by the $15\text{th}$ day of the month succeeding the quarter.

• Client Verification Officially Valid Documents (OVDs):

  • Companies: Certificate of Incorporation, MOA & AOA, Board Resolution/Power of Attorney, OVD of managers/operators.
  • Partnership Firm: Registration Certificate, Partnership Deed, OVD of partners/operators.
  • Trust: Registration Certificate, Trust Deed, OVD of trustees/operators.
  • Unincorporated Association: Resolution of managing body, Power of Attorney, legal existence proof documents.

Negotiable Instruments Act, 1881

• Overview & Recent Amendments (Sections $143A$ & $148$):
  • Came into force March 1, 1882. Governs making, negotiation, and payment of negotiable instruments.
  • Section $143A$ (Effective Sept 1, 2018): Court trying cheque dishonour complaint may order drawer to pay interim compensation up to $20\%$ of cheque amount if drawer pleads not guilty. If acquitted, complainant must repay interim compensation with interest at RBI Bank Rate within $60\,\text{days}$ (extendable by $30\,\text{days}$).

• Types of Negotiable Instruments:
  • Promissory Note (Section $4$): Unconditional undertaking in writing signed by maker to pay a certain sum of money to or to the order of a certain person or bearer. Two parties: Maker and Payee.
  • Bill of Exchange (Section $5$): Unconditional order in writing signed by maker directing a certain person to pay a certain sum of money only to or to the order of a certain person or bearer. Three parties: Drawer, Drawee, Payee.
  • Cheque (Section $6$): A bill of exchange drawn on a specified banker, payable on demand only. Includes truncated cheques and electronic cheques.

• Banker Responsibilities & Statutory Protections:
  • Banker's Duty to Pay (Section $31$): Drawee banker having sufficient applicable funds must pay cheque when duly required. Wrongful dishonor makes bank liable to compensate the drawer for loss/damage.
  • Payment in Due Course (Section $10$): Payment in accordance with apparent tenor, in good faith and without negligence, to a person in possession under circumstances not affording reasonable ground to believe he is not entitled to receive payment.
  • Protection to Paying Banker (Section $85$): Protects paying bank against forged/fraudulent endorsements on order or bearer cheques provided payment is made in due course.
  • Material Alteration (Section $89$): Payment of an altered cheque where alteration is not apparent discharges the bank if paid according to apparent tenor in due course.
  • Protection to Collecting Banker (Section $131$): Protects collecting banker receiving payment of a crossed cheque in good faith and without negligence for a customer.

Foreign Exchange Management Act, 1999 (FEMA)

• Core Definitions:

  • Authorized Person (Section $10$): Authorized dealer, money changer, offshore banking unit, or person authorized by RBI to deal in foreign exchange/securities.
  • Person Resident in India: Person residing in India for more than $182\,\text{days}$ during the preceding financial year. Excludes persons going abroad for employment, business, or uncertain stay.
  • Capital Account Transaction: Alters assets or liabilities outside India of Indian residents or inside India of non-residents.
  • Current Account Transaction: Non-capital transactions including foreign trade payments, interest on loans, net investment income, living expense remittances, and travel/education/medical expenses.

• Regulation & Enforcement:

  • Prohibitions (Section $3$): No person can deal in/transfer foreign exchange/security to an unauthorized person, make payment to a non-resident, or receive payments on behalf of non-residents without RBI permission.
  • Directorate of Enforcement (Section $36$): Officers (Assistant Director and above) empowered to investigate contraventions, search, and seize.
  • Penalties (Section $13$): Up to $3\times$ the sum involved if quantifiable, or up to $\text{Rs. } 2\,\text{lakhs}$ if not quantifiable. Continuing penalty up to $\text{Rs. } 5,000/\text{day}$.
  • Section $37A$ (Assets Held Outside India): Authorized Officer can seize equivalent value assets in India. Order placed before Competent Authority within $30\,\text{days}$, who must dispose of petition within $180\,\text{days}$. Appeal lies with Appellate Tribunal.

Payment and Settlement Systems Act, 2007

• Structure & Authorization:
  • Designated Authority: RBI exercises supervision through the Payments Regulatory Board (Members: RBI Governor - Chair, Deputy Governor in-charge of PSS, one RBI officer, and three GOI nominees).
  • Authorization (Section $4$): Operating a payment system without RBI authorization is prohibited. Public sector banks must hold at least $51\%$ equity in common retail clearing corporations (e.g., NPCI).
  • System Changes & Charges (Sections $10A$ & $11$): System changes require prior RBI approval and $30\,\text{days}$ notice to participants. Section $10A$ prohibits levying charges on electronic payments prescribed under Section $269SU$ of Income-tax Act, 1961.
  • Settlement & Netting Protection (Section $26$): Finality and irrevocability of gross or net settlements protected against insolvency/winding-up orders of system participants.

Law Relating to Securities and Modes of Charge – I & II

• Mortgages on Immovable Property (Transfer of Property Act, 1882 - Section $58$):
  • Simple Mortgage ($58(b)$): No possession; personal covenant to pay; court decree required for sale; registration mandatory if principal \ge \text{Rs. } 100$.\n * **Mortgage by Conditional Sale (58(c)):** Ostensible sale becomes absolute on default; remedy is foreclosure; no personal covenant.\n * **Usufructuary Mortgage (58(d)):** Possession delivered; mortgagee receives rents/profits in lieu of interest/principal; no personal covenant.\n * **English Mortgage (58(e)):** Absolute transfer to mortgagee subject to re-transfer on repayment; personal covenant present.\n * **Equitable Mortgage / Deposit of Title Deeds (58(f)):** Created in notified towns (Mumbai, Kolkata, Chennai, etc.) by delivering title deeds with intent to create security. No registration/stamp duty required on creation.\n * **Anomalous Mortgage (58(g)):** Combination of two or more mortgage types.\n * **Limitation Periods:** Suit for sale of mortgaged property: 12\, ext{years}$; Suit for foreclosure:$30\, ext{years}.\n\n* **Modes of Charge on Movable Securities:**\n * **Appropriation (Indian Contract Act, Sections 59 ext{-}61$):** Debtor has right to intimate appropriation ($59$). If debtor doesn't, creditor appropriates ($60$). If neither does, applied in order of time ($61 - Clayton's Case).\n * **Assignment (Section 130 Transfer of Property Act):** Transfer of actionable claims (book debts, LIC policies, government dues) in writing.\n * **Pledge (Section 172 Contract Act):** Bailment of goods as security for debt. Pawnor (pledgor) and Pawnee (pledgee). Pawnee has right of retainer and right to sell after reasonable notice.\n * **Hypothecation (SARFAESI Act Section 2):** Charge created on movable property without delivery of possession. Floating charge crystallizes on default.\n * **Banker's Lien (Section 171 Contract Act):** Implied pledge giving right to retain and sell goods/securities coming into possession in ordinary course of business.\n * **Right of Set-off:** Right of banker to combine/adjust debit and credit accounts between same parties in same right.\n\n\n\n# Creation, Registration, and Satisfaction of Charges\n\n* **Companies Act, 2013 Provisions (Sections 77$to$87):**\n * **Definition (Section 2(16)):** Interest, lien, or mortgage created on company property/assets/undertakings.\n * **Mandatory Registration:** All charges created by a company (fixed or floating, within or outside India) must be registered with the Registrar of Companies (ROC) within 30\, ext{days} of creation.\n\n\n\n\n\n * **Satisfaction of Charge (Section 82$):** Company must intimate ROC of full payment/satisfaction of charge within$30\, ext{days}$(extendable up to$300\, ext{days} on additional fees in Form CHG-4).\n\n# Module C: Important Acts/Laws & Legal Aspects of Banking Operations – Part B\n\n# Reserve Bank – Integrated Ombudsman Scheme, 2021\n\n* **Coverage & Structure:**\n * Integrates Banking Ombudsman 2006, NBFC Ombudsman 2018, and Digital Transactions Ombudsman 2019.\n * Covers Commercial Banks, RRBs, Scheduled UCBs, Non-Scheduled UCBs (deposits \ge \text{Rs. } 50\, ext{crores}$), and NBFCs with public interface/deposits (assets$\ge \text{Rs. } 100\, ext{crores}).\n * **Centralized Receipt and Processing Centre (CRPC):** Setup at RBI Chandigarh. Portal: `https://cms.rbi.org.in`.\n * **Resolution & Compensation Ceilings:** Actual dispute amount (no ceiling); Consequential loss compensation up to \text{Rs. } 20\, ext{lakhs}$; Compensation for harassment/mental anguish up to$\text{Rs. } 1\, ext{lakh}.\n * **Appellate Authority:** Executive Director in-charge of Consumer Education and Protection Dept, RBI.\n\n# The Micro, Small and Medium Enterprises Development Act, 2006\n\n* **Composite Classification Criteria:**\n * **Micro Enterprise:** Investment in Plant & Machinery \le \text{Rs. } 1\, ext{crore}$AND Turnover$\le \text{Rs. } 5\, ext{crores}.\n * **Small Enterprise:** Investment \le \text{Rs. } 10\, ext{crores}$AND Turnover$\le \text{Rs. } 50\, ext{crores}.\n * **Medium Enterprise:** Investment \le \text{Rs. } 50\, ext{crores}$AND Turnover$\le \text{Rs. } 250\, ext{crores}.\n\n* **Delayed Payments Provisions (Sections 15 & 16):**\n * Buyer must make payment on or before agreed date, which cannot exceed 45\, ext{days} from day of acceptance.\n * **Penal Interest:** Compound interest with monthly rests at 3\times the RBI Bank Rate.\n * **Facilitation Council (Section 18$/$20$):** Decides references within$90\, ext{days}$. Appeal against award requires pre-deposit of$75\%$of awarded amount (Section$19).\n\n# SARFAESI Act, 2002\n\n* **Core Definitions & Applicability Thresholds:**\n * Applicable if security interest created exceeds \text{Rs. } 1\, ext{lakh}$and unpaid dues are$\ge 20\% of principal and interest.\n * **Exclusions (Section 31$):** Agricultural land, pledge of movables, liens, ships/vessels, claims$< \text{Rs. } 1\, ext{lakh}$, or dues$< 20\% of debt.\n * **Asset Reconstruction Company (ARC):** Net Owned Funds requirement minimum \text{Rs. } 2\, ext{crores}$. Cancellation of registration appeal to GOI within$30\, ext{days}.\n\n* **Enforcement of Security Interest (Section 13):**\n * **Demand Notice (Section 13(2)$):**$60\, ext{days} notice given to borrower after account is classified as NPA.\n * **Objections (Section 13(3A)$):** Secured creditor must reply to borrower's representation/objection within$15\, ext{days}.\n * **Recourse Measures (Section 13(4)$):** Take possession of assets, takeover management, appoint manager. Consortium lending requires consensus of secured creditors holding$\ge 60\% of outstanding dues.\n * **District Magistrate / CMM Assistance (Section 14$):** DM/CMM must pass orders to take possession within$30\, ext{days}.\n * **Application to DRT (Section 17$):** Filed within$45\, ext{days}$of measure taken. DRT disposes within$60\, ext{days}$(max$4\, ext{months}).\n * **Appeal to DRAT (Section 18$):** Filed within$30\, ext{days}$. Pre-deposit of$50\%$of debt required (reducible to$25\% by DRAT).\n\n* **Central Registry (CERSAI - Section 20$):** Operationalized March 31, 2011. Mandatory registration of equitable mortgages, hypothecation, intangible charges, and attachment orders. Section$26D makes CERSAI registration compulsory for enforcing security interest.\n\n# The Recovery of Debts and Bankruptcy Act, 1993 (RDB Act)\n\n* **Jurisdiction & Structure:**\n * Applies to debt recovery applications by Banks/FIs where debt due is \ge \text{Rs. } 20\, ext{lakhs}.\n * **DRT Composition:** Presiding Officer (District Judge rank, tenure 5\, ext{years}$or age$65\, ext{years}).\n * **DRAT Composition:** Chairperson (High Court Judge rank, tenure 5\, ext{years}$or age$70\, ext{years}).\n * **Procedure (Section 19$):** Summons issued to show cause within$30\, ext{days}$. Written statement within$30\, ext{days}$(extendable by$15\, ext{days}$). Target disposal within$180\, ext{days}.\n * **Appeal to DRAT (Section 20$):** Filed within$30\, ext{days}$; requires$50\% pre-deposit of debt amount determined.\n * **Recovery Officer & Modes (Sections 25$–$30$):** Attachment/sale, arrest, receiver, or income tax recovery mode. Appeal against Recovery Officer order filed to DRT within$30\, ext{days}.\n\n# Insolvency and Bankruptcy Code, 2016 (IBC)\n\n* **Framework & Pillars:**\n * Minimum default threshold for initiating CIRP: \text{Rs. } 1\, ext{crore}$(raised from$\text{Rs. } 1\, ext{lakh} w.e.f. March 24, 2020).\n\n\n\n* **CIRP Timelines & Priority:**\n * **Timelines (Section 12$):**$180\, ext{days}$+ max$90\, ext{days}$extension; mandatory completion within$330\, ext{days}.\n * **Resolution Professional Appointment:** Approved by Committee of Creditors (CoC) with \ge 66\% voting share.\n * **Waterfall Mechanism for Liquidation Proceeds (Section 53):**\n 1. CIRP and liquidation costs.\n 2. Workmen's dues (24\, ext{months} prior) and secured creditors (relinquished security).\n 3. Wages/unpaid dues to employees (12\, ext{months} prior).\n 4. Unsecured financial creditors.\n 5. Central/State Government dues and secured creditors following security enforcement.\n 6. Remaining debts, then Preference shareholders, then Equity shareholders.\n\n# Additional Acts: Bankers' Books, Lok Adalats, Consumer Protection & Limitation\n\n* **Bankers' Books Evidence Act, 1891:** Certified copy of entries in bank records admissible as prima facie evidence. Certified printout requires certificates from Principal Accountant/Manager and Person in-charge of computer system (Section 2A$). Officers non-compellable to produce original books unless ordered by Court (Section$5).\n* **Lok Adalats (Legal Services Authorities Act, 1987):** Statutory forum for compromise/settlement. Monetary ceiling for civil disputes: \text{Rs. } 20\, ext{lakhs}. Award is final, binding, and deemed to be a decree of a Civil Court.\n* **Consumer Protection Act, 2019:**\n * **Pecuniary Jurisdiction:** District Commission (\le \text{Rs. } 1\, ext{crore}$), State Commission ($\text{Rs. } 1\, ext{crore} \text{ to } \text{Rs. } 10\, ext{crores}$), National Commission ($> \text{Rs. } 10\, ext{crores}).\n * **Appeals:** District to State within 45\, ext{days}$($50\%$deposit); State to National within$30\, ext{days}$($50\%$deposit); National to Supreme Court within$30\, ext{days}.\n * **Limitation Period:** Complaint must be filed within 2\, ext{years} from cause of action date.\n* **Law of Limitation (Limitation Act, 1963):**\n * Fresh period of limitation begins on written Acknowledgement of debt (Section 18$) or Part Payment (Section$19).\n\n\n\n\n\n# Tax Laws\n\n* **Income Tax Act, 1961:**\n * Advance Tax Installments (Corporates): June 15 (15\%$), Sept 15 ($45\%$), Dec 15 ($75\%$), March 15 ($100\%).\n * Mandatory PAN quoting: Fixed deposits > \text{Rs. } 50,000$, Cash purchase of DDs/Pay orders$\ge \text{Rs. } 50,000/\text{day}$, Cash deposits$\ge \text{Rs. } 50,000/\text{day}$or$\text{Rs. } 10\, ext{lakhs}$in savings /$\text{Rs. } 50\, ext{lakhs} in current account per year.\n* **Commodity Transaction Tax (CTT):**\n\n\n\n* **Goods and Services Tax (GST):** Enacted April 12, 2017; effective July 1, 2017. Destination-based value-added tax subsuming excise, service tax, VAT, etc. Intra-state: CGST + SGST/UTGST; Inter-state / Imports: IGST.\n\n# Module D: Commercial & Other Laws With Reference To Banking Operations\n\n# Indian Contract Act, 1872 – Core Principles\n\n* **Essentials of a Valid Contract:**\n * \text{Contract} = \text{Agreement} + \text{Enforceability}.\n * Offer & Acceptance, Consensus ad idem, Free Consent (not caused by coercion, undue influence, fraud, misrepresentation, mistake), Competency (majority age, sound mind), Lawful Consideration (Section 2(d)), Lawful Object, and Not expressly declared void.\n\n\n\n* **Contracts of Indemnity & Guarantee:**\n * **Indemnity (Section 124$):** Contract to save promisee from loss caused by promisor or third party. Rights of holder under Section$125.\n * **Guarantee (Section 126$):** Contract to perform promise or discharge liability of third person in default. Surety, Principal Debtor, Creditor. Surety liability co-extensive with principal debtor (Section$128).\n * **Continuing Guarantee (Section 129$):** Extends to series of transactions. Revocable for future transactions by notice (Section$130$) or surety's death (Section$131).\n * **Surety Discharge:** Variance in terms without consent (Section 133$), release of principal debtor (Section$134$), loss of security by creditor (Section$141).\n\n* **Bailment, Pledge & Agency:**\n * **Bailment (Section 148$):** Delivery of goods by bailor to bailee for specific purpose. Duty of care (Section$151$), bailee lien (Section$170$/$171).\n * **Pledge (Section 172):** Bailment of goods as security for debt. Pawnor & Pawnee. Right to sell after reasonable notice.\n * **Agency (Section 182):** Principal & Agent. No consideration required to create agency (Section 185). Express or implied authority. Agent indemnified against lawful acts.\n\n# Partnership & Company Law\n\n* **Partnership Act, 1932:**\n * Relation between persons sharing profits of business carried on by all or any acting for all (Section 4$). Maximum partners:$100$(Section$464 Companies Act, 2013).\n * Implied authority of partner as agent (Section 19$). Non-registration disability under Section$69 prohibits firm/partners from filing suits to enforce contractual rights.\n * Minor admitted to benefits of partnership (Section 30$): Cannot be full partner; not personally liable. Must give public notice within$6\, ext{months} of attaining majority.\n\n* **Companies Act, 2013:**\n * **Corporate Entity:** Artificial legal person, independent personality (*Salomon v. Salomon*), limited liability, perpetual succession, common seal optional (Section 46).\n * **Types:** Private Company (Max 200$members), Public Company (Min$7 members), One Person Company (OPC), Small Company, Holding & Subsidiary Companies.\n * **Key Documents:** Memorandum of Association (MOA - Name, Office, Objects, Liability, Capital, Subscription) and Articles of Association (AOA - Internal regulations).\n * **Doctrines:** Ultra Vires (beyond powers, void ab initio), Constructive Notice (presumed public notice of MOA/AOA), Indoor Management (*Royal British Bank v. Turquand* rule protecting outsiders).\n * **Board of Directors (Section 149$):** Minimum directors: Public ($3$), Private ($2$), OPC ($1$). Max$15$. At least 1 resident director ($\ge 182\, ext{days}$). Director Identification Number (DIN) mandatory. Max directorships:$20$companies (max$10 public companies).\n\n# Property, Information Technology & Corruption Laws\n\n* **Transfer of Property Act, 1882:**\n * **Sale (Section 54$):** Transfer of ownership for price. Tangible immovable property$\ge \text{Rs. } 100 requires registered instrument.\n * **Leases (Section 105$/$106$):** Agricultural/manufacturing leases deemed year-to-year ($6\, ext{months}$termination notice); other leases month-to-month ($15\, ext{days} notice).\n * **Actionable Claim (Section 3$/$130):** Claim to unsecured debt or beneficial interest in movable property transferred via written instrument.\n* **Right to Information Act, 2005:**\n * Information requested from CPIO provided within 30\, ext{days}$($48\, ext{hours}$if life/liberty involved). Application fee:$\text{Rs. } 10$. First appeal within$30\, ext{days}$; Second appeal to CIC/SIC within$90\, ext{days}$. Penalty:$\text{Rs. } 250/ ext{day}$up to$\text{Rs. } 25,000$.
• Information Technology Act, 2000:
  • E-governance, digital signatures, Certifying Authorities (Section $18$), TDSAT appeals within $45\,\text{days}$, Protected Systems (Section $70$ - up to $10\,\text{years}$ imprisonment).
• Prevention of Corruption Act, 1988:

• Special Judges (Section $3$). Prior approval for investigation required under Section $17A$ (SOP 2021). Police officers (DSP/Inspector rank) empowered to inspect Bankers' Books under Section $18$.