Banking Regulation Act General Provisions, Management Control, Loan & Advances

Powers of RBI – Control over management

Sec 36AA – Power to remove managerial and other persons from office

– Appeal lies with Central Government

Sec 35B – Power to appoint additional directors

Sec 14 – Prohibition of charge on unpaid capital

 Sec 15 – Prohibition on payment of dividend unless intangible assets written off

Sec 17 – Creation of reserve fund

Sec 18 – Maintenance of cash reserve ratio

Sec 20 – Restrictions on loans and advances

Sec 24 – SLR

Advancing Loans

The second primary function of a commercial bank is to male loans and advances to all types of people, particularly to businessmen and entrepreneurs. Loans are made against personal security, gold and silver, and other assets

The most common ways of lending are:

  1. i) Overdraft Facility
  2. ii) Cash Credit

iii) Discounting of bills of exchange

  1. iv) Money at call
  2. v) Term loans
  3. vi) Consumer credit

vii) Miscellaneous Advances

Creation of credit

A unique function of a bank is to create credit. Bank supply money to traders and manufacturers. When a bank grants a loan to its customer, it doesn’t pay cash. It simply credits the account of the borrower. He can withdraw the money whenever he wants by a cheque. In this case bank has created a deposit without receiving cash i.e. banks are said to have created credit.

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