UNIT 3
Banking Final Accounts
Introduction:
Bank business in India is governed by the banking Regulation Act 1949, which came into force
from16th March 1949. As per section 2 of this Act, provisions of companies Act 1956, are also
applicable to Banking companies. Bank is a commercial institution, licensed to accept deposits
and acts as a safe custodian of the funds of its customers, banks are mainly concerned with
receiving, collection, transferring, buying, lending, investing, exchanging, servicing money
and claims to money both domestically and internationally. The principal activities of a bank
are operating current accounts, receiving deposits, and advancing loans.
Meaning and Definition of Bank:
As per section 5(b) of the Banking Regulation Act 1949, „banking‟ means the accepting, for
the purpose of lending or investment, of deposits of money from the public repayable on
demand or otherwise, and withdrawable by cheque, drafts, order or otherwise.
Section 5(c) of banking Regulation Act defines „banking companies‟ as “any company which
transacts the business of banking in India” However the definition given by the Act is too
narrow. In modern world banking is not restricted merely to acceptance of deposits and lending
Advances. Section 6 of the Act also recognises this fact and has accordingly laid down that in
addition to the usual banking business, a banking company may carry on any additional
business as specified by section 6.
Scope of banking business:
As per the provisions of section 6 of the Banking Regulation Act, 1949 a banking company
may engage in any one of the following forms of business. In addition to the banking business.
These are
• Borrowing, raising money, advancing money either upon or without security, dealing
in bills of exchange, granting and issue of letter of credit, travellers cheques and circular
notes, selling and dealing in bullion and specie, buying and selling of foreign
exchange including foreign bank notes, dealing in stock, shares, debenture, purchasing
and selling of bonds providing of safe deposit vaults, the collecting and transmitting of
money and securities.
• Acting as an agent for any Government or local authority or any other person, acting
as an attorney on behalf of customers.
• Contracting for public and private loans and negotiating and issuing the same.
• Insuring, guaranteeing, underwriting any issue of any company, corporation or
association and lending of money for the purpose of such issue.
, • Carrying on and transacting every kind of guarantee and indemnity business.
• Selling any property which is acquired in satisfaction of claims.
• Acquiring and holding any property or right in any property against any loans
connected with such security.
• Undertaking and executing trusts.
• Establishing and supporting any institution, funds, trusts to benefit employees or ex-
employees of company.
• The acquisition, construction, maintenance and alteration of any building for the
purpose of the company.
• Selling, leasing, mortgaging, disposing all or any property and rights of the company.
• Doing all such other things as are incidental or conductive 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.
Restriction on Bank Business -
i. As per section 8 of the Banking Regulation Act 1949, certain restrictions are laid
down on the business of banking company These are-
ii. No banking company shall directly or indirectly deal in the buying, selling or
bartering of goods, except in connection with the realization of security given to or
held by it.
iii. 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 with such of its business.
Statutory provisions of Banking Regulations Act:
Minimum Capital and Reserves
As per the section of 11 (2) of the Banking Regulation Act 1949, the aggregate value of
paid up capital and reserves of a banking company in corporate outside India, shall not be
less than 15 lakhs rupees, and it has a place of business in city of Mumbai or Calcutta, then
it shall not be less than 20 lakhs rupees. It should be noted that such sum and 20% of the
net profit of each year shall be kept deposited with Reserve. Bank of India is cash or in
the form of men cumbered approved securities, or partly in cash and partly in the form of
such securities.
However in case of a banking company which is incorporated in India, the aggregate value
of capital and reserves shall not be less than the stated amount according to place of
business.
Restriction on commission, Brokerage etc. :
No banking company shall pay out directly or indirectly by way of commission, brokerage in
any form in respect of shares issued by it, any amount exceeding 2.5% of paid up value of
shares.
Banking Final Accounts
Introduction:
Bank business in India is governed by the banking Regulation Act 1949, which came into force
from16th March 1949. As per section 2 of this Act, provisions of companies Act 1956, are also
applicable to Banking companies. Bank is a commercial institution, licensed to accept deposits
and acts as a safe custodian of the funds of its customers, banks are mainly concerned with
receiving, collection, transferring, buying, lending, investing, exchanging, servicing money
and claims to money both domestically and internationally. The principal activities of a bank
are operating current accounts, receiving deposits, and advancing loans.
Meaning and Definition of Bank:
As per section 5(b) of the Banking Regulation Act 1949, „banking‟ means the accepting, for
the purpose of lending or investment, of deposits of money from the public repayable on
demand or otherwise, and withdrawable by cheque, drafts, order or otherwise.
Section 5(c) of banking Regulation Act defines „banking companies‟ as “any company which
transacts the business of banking in India” However the definition given by the Act is too
narrow. In modern world banking is not restricted merely to acceptance of deposits and lending
Advances. Section 6 of the Act also recognises this fact and has accordingly laid down that in
addition to the usual banking business, a banking company may carry on any additional
business as specified by section 6.
Scope of banking business:
As per the provisions of section 6 of the Banking Regulation Act, 1949 a banking company
may engage in any one of the following forms of business. In addition to the banking business.
These are
• Borrowing, raising money, advancing money either upon or without security, dealing
in bills of exchange, granting and issue of letter of credit, travellers cheques and circular
notes, selling and dealing in bullion and specie, buying and selling of foreign
exchange including foreign bank notes, dealing in stock, shares, debenture, purchasing
and selling of bonds providing of safe deposit vaults, the collecting and transmitting of
money and securities.
• Acting as an agent for any Government or local authority or any other person, acting
as an attorney on behalf of customers.
• Contracting for public and private loans and negotiating and issuing the same.
• Insuring, guaranteeing, underwriting any issue of any company, corporation or
association and lending of money for the purpose of such issue.
, • Carrying on and transacting every kind of guarantee and indemnity business.
• Selling any property which is acquired in satisfaction of claims.
• Acquiring and holding any property or right in any property against any loans
connected with such security.
• Undertaking and executing trusts.
• Establishing and supporting any institution, funds, trusts to benefit employees or ex-
employees of company.
• The acquisition, construction, maintenance and alteration of any building for the
purpose of the company.
• Selling, leasing, mortgaging, disposing all or any property and rights of the company.
• Doing all such other things as are incidental or conductive 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.
Restriction on Bank Business -
i. As per section 8 of the Banking Regulation Act 1949, certain restrictions are laid
down on the business of banking company These are-
ii. No banking company shall directly or indirectly deal in the buying, selling or
bartering of goods, except in connection with the realization of security given to or
held by it.
iii. 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 with such of its business.
Statutory provisions of Banking Regulations Act:
Minimum Capital and Reserves
As per the section of 11 (2) of the Banking Regulation Act 1949, the aggregate value of
paid up capital and reserves of a banking company in corporate outside India, shall not be
less than 15 lakhs rupees, and it has a place of business in city of Mumbai or Calcutta, then
it shall not be less than 20 lakhs rupees. It should be noted that such sum and 20% of the
net profit of each year shall be kept deposited with Reserve. Bank of India is cash or in
the form of men cumbered approved securities, or partly in cash and partly in the form of
such securities.
However in case of a banking company which is incorporated in India, the aggregate value
of capital and reserves shall not be less than the stated amount according to place of
business.
Restriction on commission, Brokerage etc. :
No banking company shall pay out directly or indirectly by way of commission, brokerage in
any form in respect of shares issued by it, any amount exceeding 2.5% of paid up value of
shares.
