Law and Regulatory Framework relating to Banking
Core concepts
The framework is layered. The RBI Act 1934 covers central banking, CRR (Section 42) and monetary policy. The Banking Regulation Act 1949 supplies the definition of banking (Section 5(b)), forms of business (Section 6), the bar on trading in goods (Section 8), licensing (Section 22), SLR (Section 24) and supervisory powers (Sections 35 and 35A). Around these sit the Negotiable Instruments Act 1881, the SARFAESI Act 2002, the Recovery of Debts Act 1993 (DRTs), the Insolvency and Bankruptcy Code 2016, FEMA 1999, PMLA 2002 and the Indian Contract Act 1872.
Know the instrument rules: a holder in due course takes free of defects in title; crossing restricts payment to a banker; a cheque is payable on demand and becomes stale after three months. Section 138 makes dishonour of a cheque issued for a legally enforceable debt an offence, provided notice is given within 30 days of the return memo and the drawer fails to pay within 15 days of receiving that notice.
Traps
Candidates confuse FEMA (civil regime, current and capital account rules, no mens rea requirement) with the repealed FERA, and assume SARFAESI reaches agricultural land or unsecured loans - it does not. Limitation, generally three years for a money claim, is frequently ignored.
Worked example
A cheque is returned unpaid on 5 March. Notice must be issued by 4 April (30 days). The drawer then has 15 days from receipt of the notice to pay. If payment is not made, the complaint must be filed within one month after that 15-day period expires.