Banking Regulation Act, 1949: key sections: notes for bank exams

At a glance

The Banking Regulation Act, 1949 (BR Act) is the core law that gives the RBI power to license, regulate, inspect and, when needed, restructure banks in India. The RBI Act, 1934 sets up the RBI itself; the BR Act sets the rules banks must follow. Most RBI actions in the news (approving a bank CEO, a merger or curbs on a weak co-operative bank) cite a specific section of this Act.

Key facts

Original name: Banking Companies Act, 1949; in force from 16 March 1949
Renamed: Banking Regulation Act from 1 March 1966, when it was extended to co-operative banks
Regulator: Reserve Bank of India; administering ministry: Ministry of Finance (Department of Financial Services)
Section 5: definitions, including "banking" (accepting public deposits for lending or investment, repayable on demand or otherwise and withdrawable by cheque, draft or order)
Section 12B: prior RBI approval to acquire a "major shareholding" (5% or more of paid-up capital or voting rights)
Section 22: no company can carry on banking in India without an RBI licence
Section 24: Statutory Liquidity Ratio (SLR); the CRR is under Section 42 of the RBI Act
Section 35A: RBI's power to issue binding directions to banks
Section 35B: RBI approval to appoint, reappoint or remove the chairman, MD and CEO of a private bank
Section 44A: voluntary amalgamation of banking companies, with RBI sanction
Section 45: moratorium and compulsory amalgamation or reconstruction of a bank
Section 56: applies the Act, with modifications, to co-operative banks
Major amendments: 2012 (Section 12B, board supersession), 2020 (closer RBI control of co-operative banks after the PMC Bank crisis), 2025 ("substantial interest" raised from ₹5 lakh to ₹2 crore from 1 August 2025; up to four deposit nominees from 1 November 2025)

How it works

Entry and ownership. A bank needs a licence under Section 22 before it can operate. Anyone who wants to cross 5% in a bank (counting related parties) must first get the RBI's approval under Section 12B, so the RBI can check that owners are "fit and proper".

Management. Section 10A sets board composition, and Section 35B makes the RBI the gatekeeper for the top job at private banks. Private bank CEOs are usually approved for up to three years at a time. The RBI can also remove managerial persons (Section 36AA) or supersede a private bank's board (Section 36ACA).

Day-to-day control. Under Section 35A the RBI can issue directions "in the public interest" or to protect depositors. For weak co-operative banks these "all-inclusive directions" (read with Section 56) typically bar new loans and deposits and cap withdrawals for six months. They do not cancel the licence.

Mergers and rescues.

Section	Type	Who drives it	Example
44A	Voluntary amalgamation	Boards and shareholders (two-thirds in value); RBI sanctions	Emirates NBD India branches into RBL Bank (2026)
45	Compulsory amalgamation or reconstruction	RBI drafts scheme; Central Government sanctions; moratorium up to 6 months	Yes Bank reconstruction (2020)

Recent developments

21 Oct 2026: RBI placed Puducherry Co-operative Urban Bank under all-inclusive directions (Section 35A read with Section 56) for six months; withdrawals capped at ₹5,000.
16 Oct 2026: RBI sanctioned the amalgamation of Emirates NBD's Indian branches into RBL Bank under Section 44A(4), effective 1 December 2026.
1 Oct 2026: RBI simplified Section 12B approvals for mutual funds, insurers and pension funds making further acquisitions of major shareholding in banks.
1 Oct 2026: Under Section 35B, the RBI approved Anup Bagchi as MD and CEO of HDFC Bank (27 Oct 2026 to 26 Oct 2029) and Anup Kumar Saha as MD and CEO of Kotak Mahindra Bank (three years from 1 Jan 2027).

Exam traps

SLR is under Section 24 of the BR Act; CRR is under Section 42 of the RBI Act, 1934.
Section 44A mergers are voluntary and sanctioned by the RBI; Section 45 schemes are compulsory and sanctioned by the Central Government on the RBI's application.
"Major shareholding" (12B) is 5% of a bank's capital; "substantial interest" (Section 5(ne)) is a different test, now ₹2 crore or 10% of paid-up capital, whichever is lower.
Directions under Section 35A restrict a bank's business but are not a cancellation of its licence (that is Section 22(4)).
Section 35B approval applies to private sector banks; PSB chiefs are appointed by the government, on FSIB recommendations.

Quick check

Q: Which section requires RBI approval to buy 5% or more of a bank? A: Section 12B of the BR Act, 1949.
Q: Under which section was the Emirates NBD–RBL Bank amalgamation sanctioned? A: Section 44A(4).
Q: Which section lets the RBI seek a moratorium on a bank? A: Section 45.

Sources

In the news

Every time this topic has appeared in our current affairs, newest first:

Week of 15–21 October 2026RBI approves merger of Emirates NBD's Indian branches into RBL Bank
Week of 15–21 October 2026RBI curbs Puducherry Co-operative Urban Bank; withdrawals capped at ₹5,000
Week of 1–7 October 2026Simpler RBI approval for mutual funds, insurers and pension funds raising stakes in banks
Week of 1–7 October 2026RBI approves Anup Bagchi as HDFC Bank's MD and CEO
Week of 1–7 October 2026Anup Kumar Saha to head Kotak Mahindra Bank from 1 January 2027