SCHEDULE 8

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INVESTMENTS

Guidelines of RBI for Compilation of Financial Statements

Investments (Schedule 8)

• Investment in India
  
  
• Government Securities : Includes Central and State Government securities and Government treasury bills. These securities should be at the book value and market value should be given in the notes to the Balance Sheet.
  
  
• Other approved securities : Securities other than Government securities, which according to the Banking Regulation Act, 1949, are treated as approved securities, should be included here.
  
  
• Shares : Investment in shares of companies and corporations not included in item (iii) should be included here.
  
  
• Debentures and Bonds : Investments in debentures and bonds of companies, Corporations not included in item (ii) should be included here.
  
  
• Investment in subsidiaries/joint ventures : Investment in subsidiary/joint ventures including R.R.Bs) should be in included here.
  
  
• Others : Includes general investments, if any, like gold, commercial paper and other instruments in the nature of shares/debentures/bonds.
  
  
• Investments outside India
  
  
• Government securities (including local authorities) : All foreign Government securities including securities issued by local authorities may be classified under this head.
  
  
• Subsidiaries and/or joint ventures abroad : All investments made in the share capital of subsidiaries, floated outside India and/or joint ventures abroad, should be classified under this head.
  
  
• Others : All other investments outside India may be shown under this head.

SCHEDULE 7

BALANCE WITH BANKS AND MONEY
AT CALL AND SHORT NOTICE

Guidelines of RBI for Compilation of Financial Statements

Balance with banks and money at call and short notice (Schedule 7)

• In India
  
  
• Balance with Banks : Includes all balance with banks in India (including co-operative banks). Balances in current accounts and deposit accounts should be shown separately.
  
  
• in Current Account
  
  
• in other deposits accounts
  
  
• Money at call and short notice : Includes deposits repayable within 15 days notice, lent in the inter-bank call money market.
  
  
• with banks
  
  
• with other institutions
  
  
• Outside India : Includes balance held by foreign branches and balance held by Indian branches of the banks outside India. Balance held with foreign branches by other branches of the bank, should not be shown under this head but should be included in the inter-branch accounts. The amounts held in 'current accounts' and 'deposit accounts' should be shown separately.
  
  
• Current accounts
  
  
• Deposits
  
  
• Money at call and short notice : includes deposits usually classified in foreign currencies as money at call and short notice.

SCHEDULE 6

CASH AND BALANCES WITH THE RESERVE BANK OF INDIA

Guidelines of RBI for Compilation of Financial Statements

Cash and Balances with the Reserve Bank of India (Schedule 6)

• Cash in hand (including foreign currency notes) : Includes cash in hand, including foreign currency notes and also of foreign branches in the case of banks having such branches.
  
  
• Balance with RBI
  
  
• in Current Account
  
  
• in Other Accounts

SCHEDULE 5

OTHER LIABILITIES AND PROVISIONS

Guidelines of RBI for Compilation of Financial Statements

Other Liabilities and Provisions (Schedule 5)

• Bills Payable : Includes drafts, telegraphic transfers, traveller cheques, mail transfers payable, pay slips, bankers cheques and other miscellaneous items.
  
  
• Inter-office Adjustments : The inter-office adjustments balance, if the credit should be shown under this head. Only net position of inter-office accounts, inland as well as foreign, should be shown here.
  
  
• Interest Accrued : Includes interest accrued but not due on deposits and borrowings.
  
  
• Others (including provisions) : Includes net provision for income tax and other taxes like interest tax (less advance payment, tax deducted at source, etc.) surplus in aggregate in provisions for Bad Debts Provision Account, surplus in aggregate in provisions for depreciation in securities, contingency funds which are not disclosed as reserves but are actually in the nature of reserves, proposed dividend/transfer to Government, other liabilities which are not disclosed under any of the major head such as unclaimed dividend, provisions and fund kept for specific purpose, unexpired discount, outstanding charges like rent, conveyance, etc. Certain types of deposits like staff security deposits, margin deposits, etc., where the repayment is not free, should also be included under this head.
  

Notes : General

• For arriving at the net balance of inter-office adjustments all connected inter-office accounts should be aggregated and the net balance should only be shown, representing mostly items in transit and unadjusted items.
  
  
• the interest accruing on all deposits, whether the payment is due or not, should be treated as a liability.
  
  
• it is proposed to show only pure deposits under the head 'deposits', and hence, all surplus provisions for bad and doubtful debts, contingency funds, secret reserves, etc., which are not netted off against the relative assets, should be brought under the head 'others' (including provisions).

SCHEDULE 4

BORROWINGS

Guidelines of RBI for Compilation of Financial Statements

Borrowings (Schedule 4)

• Borrowing in India : Includes borrowing / refinance obtained from Reserve Bank of India.

• Reserve Bank of India
  
  
• Other Banks : Includes borrowings / refinance obtained from commercial banks (including co-operative banks).
  
  
• Other institutions and agencies : Includes borrowings / refinance obtained from Industrial Development Bank of India, Export-Import Bank of India, National Bank for Agriculture and Rural Development and other institutions, agencies including liability against participation certificates, if any).

• Borrowings outside India : Includes borrowings of Indian branches abroad as well as borrowing of foreign branches.Secured borrowings includes above : This item will be shown separately. Includes secured borrowing / refinance in India and outside India.

Notes : General

• The total of I and II will agree with the total borrowings shown in the Balance Sheet.
  
  
• Inter-office transactions should not be shown as borrowings.
  
  
• Funds raised by foreign branches by way of certificates of deposits, notes, bonds, etc., should be classified depending upon documentation, as 'deposits', 'borrowings', etc.
  
  
• Refinance obtained by banks from Reserve Bank of India and various institutions are being brought under the head 'Borrowings'. Hence, advances will be shown at the gross amount on the assets side.

SCHEDULE 3

DEPOSITS

Guidelines of RBI for Compilation of Financial Statements

Deposits (Schedule 3)

A. (I) Demand Deposits : includes all banks deposits repayable on demand.

• from banks : includes all demand deposits of the non-banking sectors.
• from others : Credit balances in overdrafts, cash credit accounts, deposits payable at call, overdue deposits, inoperative current accounts, matured time deposits and cash certificates, certificate of deposits, etc, are to be included under this category.

(II) Saving Bank Deposits : Includes all savings bank deposits (including inoperative savings bank accounts).

(III)Term Deposits : Includes all types of bank deposits repayable after specified term.

• from banks
• from others : Includes all types of deposits of the non-banking sector, repayable after a specified term. Fixed deposits, cumulative and recurring deposits, annuity deposits, deposits mobilised under various schemes, ordinary staff deposits, foreign currency non-resident deposits accounts, etc. are to be included under this category.

B. (i) Deposits of branches in India : The total of these two items will agree with the total deposits.

(ii) Deposits of branches outside India

Notes : General

• Interest payable on deposits which is accrued but not due should not be included but shown under other liabilities.
• Matured time deposits and cash certificates, etc., should be treated as demand deposits.
• Deposits under special schemes should be included under the term deposits, if they are not payable on demand. When such deposits have matured for payment they should be shown under demand deposits.
• Deposits from banks will include deposits from the banking system in India, co-operative banks, foreign banks, which may or may not have presence in India.

SCHEDULE 2

RESERVES & SURPLUS

Guidelines of RBI for Compilation of Financial Statements

Reserves & Surplus (Schedule 2):

• Statutory Reserves : Reserves created in terms of Section 17 or another section of Banking Regulation Act, must be separately disclosed.
  
  
• Capital Reserves : The expression 'Capital Reserve' shall not include any amount regarded as free for distribution through the Profit and Liss Account. Surplus on revaluation should be treated as Capital Reserves. Surplus on translation of the financial statements of foreign branches (which includes fixed assets also) is not a revaluation reserve.
  
  
• Share Premium : Premium on issue of share capital may be shown separately under this head.
  
  
• Revenue and other Reserves : The expression 'Revenue Reserve' shall mean any reserve other than capital reserve. This item will include all reserves, other than those separately classified. This expression 'reserve' shall not include any amount, written-off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability.
  
  
• Balance of Profit : Includes balance of profit after appropriation. In case of loss the balance may be shown as a deduction.

Notes : General

Movement in various categories of reserves should be shown as indicated in the schedule.

SCHEDULE 1

CAPITAL

Guidelines of RBI for Compilation of Financial Statements

Capital (Schedule 1):

• Nationalised Banks Capital(fully owned by Central Government) :The capital owned by Central Government as on the date of the Balance Sheet, including contribution from Government, if any, for participating in World Bank Projects, should be shown.

• Banking companies incorporated outside India :(i) The amount brought in by banks by way of start-up capital as prescribed by RBI, should be shown under this head.(ii)The amount of deposits kept with RBI under sub-section 2 of Section 11 of the Banking Regulation Act, 1949 should also be shown.

• Other Banks (Indian) Authorised Capital (...Shares of Rs. ....... each) Issued Capital (.....Shares of Rs. ......each) Subscribed Capital (......Shares of Rs. ........... each) Called-up Capital (......... Shares of Rs. ........each) Less: Calls unpaid Add: Forfeited shares:Paid-up Capital:- Authorised, Issued, Subscribed, Called-up Capitals should be given separately. Calls-in-arrears will be deducted from Called-up Capital while the paid-up value of forfeited shares should be added, thus arriving at the paid-up-capital. The necessary items which can be combined should be shown under one head for instance, 'Issued and Subscribed Capital."

Notes: General

The changes in the above items, if any, during the years,say fresh contribution made by the Government, fresh issue of capital, capitalisation of reserves, etc., may be explained in the notes.

FORM OF PROFIT & LOSS ACCOUNT

Form 'B'
FORM OF PROFIT & LOSS ACCOUNT FOR
THE YEAR ENDED 31ST MARCH

Note :

1. The total income includes income of foreign branches at Rs. .........
   
2. The total expenditure includes expenditure of foreign branches at Rs. ...............
3. Surplus / deficit of foreign branches Rs. ...........

FORM OF BALANCE SHEET

THE THIRD SCHEDULE (See Section 29)
Form 'A'
FORM OF BALANCE SHEET

FINAL ACCOUNTS

According to Section 29 of the Banking Regulation Act the 1949, every banking company is required to prepare with reference to that year a Balance Sheet and Profit and Loss account as on the last working day of the year in the ‘ Form A’ and ‘Form B’ respectively set out in third schedule.

Revised forms of Balance Sheet and Profit and Loss Account

On 18-1-1991 the Government of India issued a notification to make amendments to the third schedule to the Banking Regulation Act incorporating the recommendations of Ghosh Committee (A Ghosh, Deputy Governor, RBI) relating to the formats of Balance Sheet and Profit and Loss account. As such, the Reserve Bank of India issued a circular as on 6-2-1992 to the Chief executives of all commercial banks to prepare and present their accounts under revised formats for the year ended 31st March 1992 and thereafter.

Revised Balance Sheet

With effect from 31st March 1992, the Balance Sheet of a bank is to be prepared as per the new form. In the new form, assets and liabilities are shown vertically along with the figures of the last year. In the top section, capital and liabilities are shown and in the bottom section, the assets are shown:

Capital and Liabilities

1. Capital: This is the first item to appear under the heading ‘ Capital and Liabilities’. Its details are shown in Schedule 1.
2. Reserves and Surplus: It is the second item to appear under ‘ Capital and Liabilities’. Statutory Reserves, Capital Reserve, Share Premium, Revenue Reserves, Profit and Loss Account balance etc. are shown under this item. Its details are shown under Schedule 2.
3. Deposits: It is the third item to appear under ‘ Capital and Liabilities’. Demand Deposits, savings bank deposits and term deposits are shown under this heading. The details are shown under Schedule 3.
4. Borrowings: It is the fourth item to appear under ‘ Capital and Liabilities’. Borrowings from Reserve Bank of India, other banks, institutions and agencies are shown under this item. The details are shown under Schedule 4.
5. Other Liabilities and Provisions: It is the last item to appear under ‘ Capital and Liabilities’. Bills payable inter office adjustments, interest due, provision for bad debts, provisions for taxation etc. are shown under this item. The details are shown in Schedule 5.

Assests

1. Cash and Balances with Reserve Bank of India: It is the first item to be shown under the heading 'Assests'. Cash in hand (including foreign currency note); and balances with RBI are shown under this item. The details are shown under Schedule 6.
2. Balances with Banks and Money at Call and Short Notice: It is the second item to be shown under the heading 'Assests'. Balances with other banks and Money at call and short notice are shown under it. The details are shown in Schedule 7.
• Money at Call and Short Notice represent inter bank loans, short loans to stock brokers etc. Money at call is refundable at 24 hours notice and Money at Short Notice is refundable at 7 day's notice.
3. Investments: It is the third item to be shown under the heading 'Assests'. Investment in Government securities, other approved securities, shares, debentures and bonds, gold etc. are shown under this item. The details are given under Schedule 8.
4. Advances: It is the fourth item to be shown under the heading 'Assests'. Bills purchased and discounted, cash credit, overdraft and loans payable on demand; and term loans are shown under this item. The details are shown under Schedule 9.
5. Fixed Assests: It is the fifth item to be shown under the heading 'Assests'. Premises, furniture and fixtures etc. are shown under this item. The details are shown in Schedule 10.
6. Other Assests: It is the last item to be shown under the heading 'Assests'. Inter-office adjustments, interest accrued, tax paid in advance, stationery and stamps, silver in stock. non banking assets acquired in satisfaction of claims are shown under this item. The details are shown under Schedule 11.

Contingent Liabilities

A contingent liability is one which is not an liability but which will become an actual one on the happening of some event which is uncertain.

Contingent liabilities have two characteristics: (i) uncertainty as to whether amount will be payable at all and (ii) uncertainty about the amount involved. It is sufficient for the amount of contingent liability to be stated on the face of the Balance Sheet by way of a foot note. It need not be extended to the amount column on the liability side.

Claims against the bank not acknowledged as debt, liability for partly paid investments, liability on account of outstanding forward exchange contracts etc. come under contingent liabilities in bank. The details of can contingent liabilities are shown in Schedule 12.

Profit and Loss Account

Profit and Loss Account of a banking company is also prepared in vertical form. ‘Form B’ of the Third Schedule of the Banking Regulation Act 1949 is used for preparing Profit and Loss Account. It is divided into four sections:

• Income: The first item of this section is interest earned. Interest/discount on advances/ bills, income on investments, interest on balances with RBI and other inter-bank funds etc. are shown under this item. The details are shown in Schedule 13. It should be noted that according to new form, bad debts and provision for bad debts and other provisions are not deducted from interest earned. These items are shown separately in the Profit and Loss Account.

The second item of this section is other income, Commission, exchange and brokerage, profit on sale or investments, profit on revaluation of investments, profit on sale of land, building and other assets, profit on exchange transactions, income earned by way of dividend from subsidiaries etc. are shown under this item. The details are shown in Schedule 14.

• Expenditure: It is divided into three sections-

• Interest Expended: It includes interest paid on deposits, interest on borrowings from RBI, interest on inter-bank borrowings etc. The detail is given under Schedule 15.

• Operating Expenses: It include salaries and wages of staff, rent rates and taxes, printing and stationery, advertisements, depreciation on bank’s properties, directors fees, auditors fees, law charges, postage, repairs, insurance etc. The details are given in Schedule 16.

• Provision and Contingencies: It include provision for bad debts, provision for taxation and other provisions.

• Profit/Loss: Under this, profit/loss for the current year (difference between income and expenditure of the current year) and the profit/loss brought forward are shown.

• Appropriations: All appropriations from profits such transfer to Statutory Reserve, transfer to other reserves, proposed dividend etc. are shown. The balance is transferred to Balance Sheet.
  

Books maintained by a Bank

The methods of preparation and presentation of Profit and Loss Account and a Balance Sheet of a Bank are very important and significant which include certain peculiar terms. For this purpose, a short description of different books, ledgers, registers and terms which are very important are discussed hereunder.

Books Section

Cash Book: For recording different types of cash transactions two types of cash books are recorded, viz.

• Rough Cash Book which deals with cash receipts and cash payments maintained by a receiving cashier and paying cashier, respectively. It records serial number, depositor’s name, amount received etc. in cash, whereas, in case of cash payment, serial number, payee’s name, amount paid, number of token etc, are recorded.
• A Fair Cash Book, on the other hand, is one when a separate person, after receiving the above information from the paying and receiving cashier, records the transactions in a separate book. Naturally, the transaction of the Fiar Cash Book must tally with the sum total of the above two cash books.
  

Cash Balance Book: The cash balance at the close of the day is written in the book which is duly signed by the cashier and the manager.

Day Book: It records day-to-day transactions of the book relating to cash transfers, clearings etc.

Ledger and Register Sections

Ledger Section:

Current Account Ledger: It records the transactions of those customers who open current accounts. Generally, the bank does not pay interest on the balance of this account but a nominal charge is taken by the bank for rendering the services. If there are many current accounts, those are to be serially numbered.

Savings Bank Ledger: It records the transactions of those customers who open savings account in a bank. The detailed description of the customer, viz, name, address, occupation, etc. are recorded along with an account number. If there are many Savings Account Ledgers, they are to be serially numbered.

Fixed Deposit Ledger: It contains transactions of those customers who have deposited their money into the bank for a fixed period. Generally, at the top of the account, depositor's name and address, rates of interest, period of deposit, the amount so deposited etc. are to be recorded.

General Ledger: It is actually the key ledger of the accounting system of a bank. It contains a total amount in respect of total Current Accounts, total Savings Bank Account, total Loans Account, Total Bills Payable Account, Total Expenses and Total Revenue Accounts. Each ledger is kept under self-balancing system. A trial balance can easily be prepared which help to prepare the Final Account as well.

Besides the above ledgers, overdue fixed deposit ledger, fixed deposit interest ledger, loan ledger, investment ledger may also be prepared.

Register Section

The register section includes, Bills for Collection Register, Securities Register, Document Register, Standing Order Register, Cheque Dishonoured Register, Drafts Issue Register, Drafts Payable Register, D.D. Register, Foreign Letters of Credit Register etc.

The Slip system of Ledger Posting

It is a method of rapid posting in books maintained under Double Entry principle. Under this system posting is done from slips and not from journals or cash books. Slips are loose leaves of journals and these are supplied either by the customers or by the bank staff.

It becomes necessary for a bank to know the position of its individual customer’s account at any time and to see that the transactions are recored as soon as they take place. The same is not actually possible if transactions are recorded in bound books. So, original cheques and paying-in-slips are used as vouchers. Consequently, the cashier, for this purpose, credits cash account for receiving cheque and it passes on to the ledger-keeper concerned for debting the customers’ accounts. On the contrary, for paying-in-slips the cashier debit cash account and passes on the same to the ledger-keeper concerned, for crediting the customers’ accounts. In this way, the Double Entry posting is completed. The transactions which are not covered by original slips are posted by means of ‘dockets’ which is made out by the bank staff. There are used for posting purposes.

Advantages:

The advantages of this system are

• it reduces the possibility of errors and frauds.
• it saves a lot of time since the slips are prepared by the customers themselves.
• it provides a good system of internal check etc.

Disadvantages:

The system is also not free from snags. It suffers from the risk of loss, misappropriation or destruction of slips they are loose.

Special Features of Bank Accounting

• Entries are posted in the personal ledgers directly from slips instead of being posted from the books of primary entry. In a bank, the main slips are pay-in-slips and cheques. These slips are filled in by the bank’s customers; as such the bank saves a lot of clerical labour and cost.
• Trial balance is prepared every day from the balance of accounts in the General ledger.
• Personal ledger are kept under self balancing system. Trial balance is prepared for personal ledgers twice in a month.
• The slips posted into different personal ledgers every day are summarised on summary sheets, totals of which are posted to the control accounts in the General ledger.

Principal Provisions of the Banking Regulation Act, 1949

Restriction on Business

The Banking Regulation Act 1949 imposes certain restrictions on the business of a banking company. These are as follows:

• No banking company shall directly or indirectly deal in the buying, selling or bartering of goods, except in connection with the realisation of security given to or held by it;

• No banking company can engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bill of exchange, received for collection or negotiation or such of its business or is referred to in clause (i) of sub-section (I) of section 6.

Non-banking Assests (Section 9)

Non banking assets are the assets acquired in satisfaction of claims. According to Section 9 “A banking company cannot hold any immovable property how so ever acquired, except for own use, for any period exceeding seven years from the date of acquisition thereof . The company is permitted, within the period of seven years, to deal or trade in any such property for facilitating its disposal.” Of course, the Reserve Bank of India may, in the interest of depositors, extend the period of seven years by any period not exceeding five years.

Management (Section 10)

Section 10(a) states that not less than 51% of the total numbers of the Board of Directors of a banking company shall consist of persons who have special knowledge or practical experience in one or more of the following fields:

(a) Accountancy (b) Agriculture and Rural Economy (c) Banking (d) Co-operation (e) Economics (f) Finance (g) Law (h) Small Scale Industry

Minimum Capital and Reserves (Section 11)

As per the provision of Section 11(2) of the Banking Regulation Act, 1949, the aggregate amount of Paid-up Capital and Reserves of a banking company incorporated outside India shall not be less than Rs.15 lakhs, and if it has a place or places of business in the city of Bombay or Calcutta or both, then it shall not be less than 20 lakhs of rupees. It is also stated that such sum and 20% of the profit of each year shall be kept deposited with Reserve Bank of India in cash or in the form of unencumbered approved securities, or partly in the form of such securities.

However, in case of a banking incorporated in India, the aggregate value of capital and reserve shall not be less than the stated amounts according to the places of business. The provisions may be clear from the following diagram.

Capital Structure (Section 12)

According to Section 12, no banking company can carry on business in India, unless it satisfies the following conditions:

• Its subscribed capital is not less than one-half of its authorised capital, and its paid-up capital is not less than one-half of its subscribed capital.
• Its capital consists of ordinary shares only or ordinary and such preference shares as may have been issued prior-to 1st April 1944. This restriction does not apply to a banking company incorporated before 15th January 1937.
• The voting right of any share holder shall not exceed 5% of the total voting right of all the share holders of the company.

Restriction on Commission Brokerage, Discount etc.
on Sale of Shares (Section 13)

No banking company shall payout directly or indirectly by way of commission, brokerage, discount or remuneration in any form in respect of any shares issued by it, any amount exceeding in the aggregate two and one-half percent, of the paid up value of the said shares.

Restriction on Payment of Dividend (Section 15)

No banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisation expenses, share-selling commission etc.) have been completely written off.

However a banking company may pay dividends on its shares without writing off:

• the depreciation if any, in the value of its investment in approved securities in any case where such depreciation has not actually been capitalised or otherwise accounted for as a loss.
• the depreciation, if any, in the value of its investments in shares, debentures or bonds (other than approved securities) in any case where adequate provision for such depreciation has been made to the satisfaction of the auditor of the banking company;
• the bad debts, if any, in any case where adequate provision for such debts has been made to the satisfaction of the auditors of the banking company.

Statutory Reserve (Section 17)

Every banking company incorporated in India shall create a reserve fund and transfer to it atleast 20% of its annual profit as disclosed in the Profit and Loss Account prepared under Section 29 and before any dividend is declared. The Central Government may, however, on the recommendation of Reserve Bank of India exempt it from this requirement for a specified period. The exemption is granted if its existing reserve fund together with share premium account is not less than its paid-up capital.

Cash Reserve (Section 18)

Every bank, not being a scheduled bank, has to maintain a cash reserve of atleast 3% of the total of its demand and time liabilities in India as on last Friday of the second proceeding fortnight. The Reserve Bank has the power to regulate the percentage between 3% and 15% (in case of scheduled banks). The cash reserve can be maintained in cash by itself or in current account with Reserve Bank of India or the State Bank of India or any other bank notified by the Central Government in its behalf.

Restrictions on Loans and Advances (Section 20)

No banking company shall -

• grant any loans or advances on the security of its own shares, or
• enter into any commitment for granting any loan or advance to or on behalf of -

1. any of its directors
2. any firm, in which any of its directors is interested as partner, manager, employee or guarantor, or
3. any company of which any of the directors of the banking company is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest or
4. any individual, in respect of whom any of its directors is a partner or guarantor.

Permissible Business of a Banking Company

Vide Section 6(i) of the Banking Regulation Act, 1949 a banking company may, in addition to the usual banking business, engage in any one or more of the following forms of business, namely -

• the borrowing , raising or taking up of money, the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondies, promissory notes, coupons, drafts, bill of ladings, railway receipts, warrants, debentures, certificates, scripts and their instruments, and securities whether transferable or negotiable or note; the granting and issuing of letters of credit, traveller's cheques and circular notes; the buying, selling and dealing in bullion; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligation, securities and investments of all kinds; the purchasing and selling of bonds, scripts or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe-custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities.
• 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.
• contracting for public and private loans and issuing the same.
  
• the effecting, 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 the lending of money for the purpose of any such issue.
  
• carrying on and transacting every kind of guarantee and indemnity business.
• managing, selling and realising any property which may come into possession of the company in satisfaction or part satisfaction of any of its claims.
• acquiring and holding and generally dealing with any property or any right, 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.
• undertaking and executing trusts.
• undertaking the administration of estates as executor, trustee or otherwise.
• establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object.
• the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the company.
• selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company.
• 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 this sub-section.
• doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company.
• any other form of business which the Central Government may, by notification in the official Gazette, specify as a form of business in which it is lawful for a banking company to engage

According to Section 8, the banking companies are prohibited from dealing, directly or indirectly, in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by it, or engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business as is referred to in Clause (i) of Sub-section (I) of Section 6. For the purpose of this Section, "good" means every kind of movable property, other than actionable claims, stocks, shares, money bullion and all instruments referred to in Clause (a) of Sub-section (i) of Section 6.

Banking Companies

Definition

Banking Companies in India are governed by the Banking Regulation Act, 1949. Section 5(b) of this Act defines banking as "accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise." Further, Section 5(c) of the Banking Regulation Act defines a banking company as "any company which transacts the business of banking in India."

Licensing of Banking Companies

According to Sec.22 of Banking Regulation Act, no company shall carry on Banking Business in India unless it holds a license issued by Reserve Bank of India. If the following conditions are satisfied, the Reserve Bank of India may grant a license -

• "that the company is or will be in a position to pay its present and future depositors in full as their claims accrue ;
• that the affairs of the company are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors ;
• 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 the 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 licence

The RBI may cancel a licence if :

• the company ceases to carry on banking business in India ;
• the company at any time fails to comply with any of the conditions on which licence was granted, or
• at any time, any of the conditions on the satisfaction of which the Reserve bank of India granted the licence, has not been fulfilled.