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Regulations of Banking in India- The banking system in India is governed by the Reserve Bank of India (RBI), by the provisions of the Banking Regulation Act, 1949. The Reserve Bank of India (RBI), India’s central bank, upshots many guidelines, notifications, and plans from time to time to monitor the banking sector. In extension, the Foreign Exchange Management Act 1999 (FEMA) coordinates cross-border exchange transactions by Indian entities, including banks.
India has both private sector banks (which hold branches and subsidiaries of foreign banks) and public-sector banks (ie, banks in which the government undeviatingly or obliquely holds control interest). Banks in India can essentially be classified as:
- scheduled commercial banks (ie, commercial banks performing all banking functions);
- cooperative banks (set up by cooperative societies for providing financing to small borrowers); and
- regional rural banks (RRBs) (for providing credit to rural and agricultural areas).
The key statutes and regulations that govern the banking industry in India are
- Reserve Bank of India Act, 1934 (RBI Act): The RBI Act was enacted to establish and set out the functions of the RBI. The RBI Act empowers the RBI to issue rules, regulations, directions, and guidelines on a wide range of issues relating to the banking and the financial sector.
- Banking Regulation Act, 1949 (BR Act): The BR Act provides a framework for the supervision and regulation of all banks. It also gives the RBI the power to grant licenses to banks and regulate their business operation. The BR Act also sets out details of the various businesses that a bank in India is permitted to engage in.
- Foreign Exchange Management Act, 1999 and the rules and regulations issued thereunder (FEMA): The FEMA is the primary legislation in India that regulates cross-border transactions and related activities. FEMA and the rules made thereunder are administered by the RBI.
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