BANK OF INDIA ACT, 1934
The Reserve Bank of India Act was passed in 1934 to establish the Reserve Bank of India which is the guardian of the banking system in India. As the Central Bank of the country, the Reserve Bank of India Act contains provisions concerning the commercial banks. The Act provides for the classification of banks into scheduled banks and non-scheduled banks. Accordingly, a scheduled bank is one which is included in the second schedule to the Reserve Bank of India Act, 1934.
As per the conditions, laid down in the Reserve Bank of India Act, 1934, a bank satisfying the following conditions can be included in the second schedule:
(j) It must have a paid up capital and reserves of not less than Rupees 5 lakhs.
(ii) It does not conduct its affairs in the manner detrimental to the interest of the depositors, and
(iii) It must be a state co-operative bank or a company defined in the Companies Act, 1956 or an institution notified by the Central Government in this behalf or a corporation or a company incorporated by or under any law in force outside India.
A Scheduled Commercial Bank enjoys certain advantages such as getting financial accommodation from the RBI, cheap remittance facilities from the RBI, clearing facilities, etc. In order to enjoy these facilities, a scheduled commercial bank has to fulfill the obligation of maintaining statutory reserves with the Reserve Bank. It is not obligatory on the part of non-scheduled banks to maintain statutory cash reserves with the Reserve Bank.
Being the central bank of our country, the Reserve Bank of India performs all Central Banking functions. Many powers are given to the Reserve Bank of India to control the commercial banks by the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The powers are as follows:
- As supervisory and controlling authority over banks.
- As controller of credit.
- As banker to the banks i.e., as the lender of the last resort.