Powers of RBI to Issue Directions: Section 21, 35A, 36

November 21, 2019
SEBI Grade A Test Series

The RBI drives the powers to issue directions to banking companies through provisions of Banking Regulation Act, 1949. The Section 21, 35A and 36 of BR Act confers powers of RBI to issue directions to banking companies.

Powers of RBI to Issue Directions

Power of RBI to issue directions under Section 21, BR Act

The Section 21 of Act allows RBI to control loans and advances extended by banking companies.  RBI may issue directions in respect of following items to banking companies and every banking company has to necessarily comply with its directions:

  • To specify the purposes for which advances may or may not be made.
  • The margins to be maintained in respect of secured advances
  • The maximum amount of advances that can be made to particular company, firm, association of persons or individual having regard to the paid-up capital, reserves and deposits of a banking company.
  • The maximum amount of guarantee that can be made by banking on behalf of particular company, firm, association of persons or individual having regard to the paid-up capital, reserves and deposits of a banking company.
  • The rate of interest and other terms and conditions on which advances may be made or guarantees may be given.

Power of RBI under Section 35A

Section 35A of the Banking Regulation Act, 1949 vests power in the RBI to give directions to banks and can take action:

  • to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company
  • to ensure better governance and control

Power of RBI under Section 36

Under Section 36 of Banking Regulation Act, the RBI is empowered to caution or prohibit any banking company regarding any transaction or class of actions.

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