BANKING LAWS IN INDIA
As per the reports of the Reserve Bank of India (“RBI”), India’s banking sector is sufficiently capitalised and well-regulated. The financial conditions and the economy in the present moment are far better than any country in the world. Be it credit, market or liquidity risk studies and surveys, they all suggest Indian banks have withstood the global downturn efficiently and can recover quickly from difficult conditions. India is said to be one of the fastest growing economies in the world.
The digital payment evolved overnight after the Prime Minister’s measure of Demonetisation in 2016. According to FSI reports, India developed the most in the 25 countries with India’s Immediate Payment Services (“IMPS”) being the only one which is placed at Level 5 in the Faster Payments Innovation Index (“FPII”). Also, RBI has allowed more features such as unlimited fund transfers between wallets and bank accounts, these wallets are expected to become really strong players in the financial ecosystem. The unorganised retail sector has a huge untapped potential of adopting digital mobile wallets for payments, as per a report by the Centre for Digital Financial Inclusion. Around 63 per cent of retailers are interested in using digital modes of payment.
In 2017, Global rating agency Moody’s announced that the Indian Banking system was stable. They also upgraded four Indian banks from Baa3 to Baa2. Under the union budget 2018, the government has allocated Rs 3 trillion towards Mudra scheme, which provides financial assistance to small businessmen who want to grow their business. The government has also invested Rs 3,794 crores towards credit support, capital and interest subsidy to MSMEs.
The government and regulator have undertaken several measures to strengthen the Indian Banking sector. Such as a two-year plan to strengthen the public sector banks through reforms and capital infusion of Rs 2.11 lakh crore that will let the banks play a large role in the financial system by giving a boost to the MSME sector. Lok Sabha has also approved Rs 80,000 crores of recapitalisation bonds for public sector banks.
Looking at the Statistics, Banking sector for lawyers will grow to be a booming sector in the Indian Economy in the coming year. It is a lucrative and attractive career option for all the law students. It is said to be a top sector and attractive for lawyers even when it is not doing so well. When banks do well, they need many lawyers. When they are not doing so well, they need more lawyers! It is a proven fact, that firms do well when banks do not do well, assets are said to be distressed and clients default on payments. It can be said that the banking sector for lawyers is recession proof and is here to stay.
Legislative framework for the Banking sector
There are various banking laws and regulations which are mainly or partly related as to how the banks function in the country, they are as follows:
1. Reserve Bank of India Act, 1934
It was enacted to constitute RBI with objectives to regulate the issue of bank notes, keeping reserves to ensure stability in the monetary system and operate the nation’s currency and credit system effectively.
The Act mainly covers the constitution, powers and functions of the RBI. The act does not deal with the regulation of the banking system except for Section 42 which is related to regulation of cash reserve ratio and Section 18 which mainly talks about direct discounting of bills of exchange and promissory notes.
2. Banking Regulation Act, 1949
It is deemed to be one of the most important legal framework for banks. It was initially passed as the Banking Companies Act, 1949 and it was eventually changed to the Banking Regulation Act, 1949 (“The BR Act”). Along with the RBI Act, The BR Act provides a lot of guidelines to the banks.
3. Prevention of Money Laundering Act, 2002 (“PMLA”)
RBI has been a supervisor of Banking companies in India. It has been playing an important role in ensuring that the good corporate governance practices are being followed by the banking companies. RBI’s various guidelines in M&As, pattern of shareholding, restrictions on various issues can be seen as some of the important steps by RBI to ensure good corporate governance practices of banks in India.
4. Foreign Exchange Management Act, 1999
The Foreign Exchange Management Act, 1999 deals with the regulation and management of foreign exchange. Its objective is to amend laws related to foreign exchange so that foreign exchange markets can be developed and foreign trade and payments increase.
5. Limitation Act, 1963
Deemed to be one of the most important law in the aspects of Lending. This particular Act gives the power to the lending bank in taking legal action against the borrower in case he defaults on his loan payments.