Paid up Capital and Reserves Requirements of banks

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The Section 11 of Banking Regulation Act, 1949 describes paid up capital and reserves requirement of banks in India. The amount specified has reference of “place of business”. The “place of business” means any office, sub-office, sub-pay office and any place of business at which deposits are received, cheques cashed, or moneys lent.

Paid up Capital and Reserves

Paid up Capital and Reserves for Foreign Banks

As per section 11(2) of Banking Regulation Act, 1949, the banking company incorporated outside India (Foreign Bank) must maintain paid-up capital and reserves of 15 lakhs rupees and if it has a place or places of business in the city of Mumbai or Calcutta or both, 20 lakhs rupees. The bank has to deposit such capital in form of cash or in the form of unencumbered approved securities, or partly in cash and partly in the form of such securities with Reserve Bank of India. Such foreign bank shall deposit an amount of 20 percent of its profit for each year in respect of all business transacted through its branches in India, as disclosed in the profit and loss account. In case of cessation of banking company incorporated outside India, the amount deposited with RBI form the assets of the company and all the creditors of the company shall have first charge.

Indian Banks

As per section 11(2) of Banking Regulation Act, 1949, the banking company incorporated in India must maintain paid-up capital and reserves of:

  • Rs 5 lakh if it has places of business in more than one State and if any such place or places of business is or are situated in the city of Mumbai or Calcutta or both, than Rs 10 lakhs
  • Rs 1 lakh if it has all its places of business in one State none of which is situated in the city of Mumbai or Calcutta in respect of its principal place of business, plus Rs 10,000 in respect of each of its other places of business situated in the same district in which it has its principal place of business, plus Rs 25,000 in respect of each place of business situated elsewhere in the State otherwise than in the same district. However aggregate value should not exceed Rs 5 lakh. Further if a banking company has only one place of business then the amount is Rs 50,000.

For banking company which commences banking business after the commencement of this act, the amount is limited to Rs 5 lakh.

  • Rs 5 lakh if it has all its places of business in one State, one or more of which is or are situated in the city of Bombay or Calcutta. An additional Rs 25,000 for each place of business situated outside the city of Bombay or Calcutta. The aggregate amount should not exceed Rs 10 lakh.
  • The initial minimum paid-up capital for a new private sector bank is Rs.200 crore. The initial capital should be raised to Rs.300 crore within three years of commencement of business. The overall capital structure of the proposed bank including the authorised capital is approved by the RBI.

Paid-up capital, Subscribed capital and Authorised capital

The subscribed capital of the banking company should not be less than one-half of the authorised capital. The paid-up capital should not be less than one-half of the subscribed capital. If the capital is increased, the company must comply with the prescribed conditions within two years or as directed by RBI.

As per Section 12 (1)(ii) of Banking Regulation Act, the capital of bank must consists of equity shares and preference shares. The issue of preference share shall be in accordance with the guidelines framed by the Reserve Bank.

Read Next: Shareholding in Banking Companies

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