Programme in W B Judicial Academy for Judicial

Programme in W. B. Judicial Academy for Judicial officers By N. V. DESHPANDE FORMER P. L. A. RBI. 12 &13 April, 2011. 3/15/2018 NVD 1

Programme in W. B. Judicial Academy for Judicial officers. Welcome to the Sessions on BANKING REFORMS-A STUDY FROM LEGAL PERSPECTIVE 3/15/2018 NVD 2

Banking Reforms-An overview. • Financial. Markets Govt. of India. (Mo. F) • RBI (Money Market) • SEBI(Capital Market) • IRDA(Insurance Sector) • PFRDA(Pension & PF Sector) • Commodities- FMC. (Future Markets in Commodities. ) • Ministry of Agriculture. Govt. of India. 3/15/2018 NVD 3

RBI- Reforms As Monetary Authority. ¬ Shift from Institutionwise regulation to activitywise regulation-from lazy banking to ALM banking. ¬Money Market Instruments-NDS platform for trading- CCIL as clearing Authority even for FOREX market. ¬ Regulating conglomerates-Systemically imp. institutions-too big to fail 3/15/2018 NVD 4

RBI- Reforms As Monetary Authority. Contd. ¬ Concept of super-regulator. ¬ High- level coordination committee. (RBI) ¬ Regulatory conflicts among regulators. ¬ Setting up of FSDC ¬ FSDC providing for rewriting of financial laws under a high power committee. 3/15/2018 NVD 5

Banking Reforms-An overview. • RBI. • Banks • Nationalised Banks. (1970 &1980 Acts) • SBI & Associate Banks • Private Sector, Old & New Generation, Banks. • Foreign Banks. • Co-operative Banks. • RRBs & Local area Banks. • NBFCs • Public Funded • Self-owned funded. 3/15/2018 NVD • MFIs 6

Banking Reforms-Regulatory Angle- A case study. ¬ IDBI Ltd. estd. under IDB (Transfer of Undertaking and Repeal) Act, 2003 -Appointed date: Oct. 1, 2004. ¬ Deemed banking company u/s 3(1)(c) and as such not required to get banking license u/s 22 of the BR Act. ¬ Exempted from CRR/SLR requirement for 5 years ¬ BR Act applicable to the extent not repugnant. ¬ Power to the Central Govt. to apply/not apply BR Act. 3/15/2018 NVD 7

Regulatory Provisions. (B. R. Act) (contd. ) ¬Licensing of banking companies. S. 22 ¬Restrictions on opening of new and transfer of existing places of business. S. 23 ¬Maintenance of percentage of assets. S. 24. ¬Assets in India. S. 25 ¬Return of unclaimed deposits. S. 26 3/15/2018 NVD 8

Regulatory Power of the RBI. ¬Production of documents of confidential nature. S. 34 A ¬Inspection S. 35 ¬Power of RBI to give directions. S. 35 A ¬Further powers and Function of the RBI. S. 36 ¬Power of RBI to remove managerial and other persons from office. S. 36 AA. 3/15/2018 NVD 9

Mergers and Amalgamations ¬ Procedure for the amalgamation of banking companies. S. 44 A. No provision for acquisitions. Amendments propose new section to include NBFCs & Co-op. banks. ¬ Power of RBI to apply to Central Govt. for suspension of business by a banking company and to prepare a scheme of reconstitution or amalgamation. 3/15/2018 NVD 10

Salient Proposed Amendments to the BR Act under the pending Bills. . ¬ Approved securities definition to be amended to include only the Govt. Issued securities. S. 5(a) ¬ Clause 12(1) introduction of preference shares ¬ New Clause 12 B Regulation of acquisition of shares or voting rights. Providing approval procedure and application of fit and proper norms. ¬ Automatic approval if no approval is given in 90 days. 3/15/2018 NVD 11

Amendments continued. ¬ RBI’s. Power to exempt any bank from the restrictions on loan and advances. S. 20(6) ¬ Minimum SLR limit of 25% removed. S. 24(2 A) ¬ Power in respect of associate enterprises. S. 29 A. ¬ S. 36 ACA new section giving power to supersede the Board of a bank. ¬ Power to direct special audit on a coop. bank given to RBI. 3/15/2018 NVD 12

Suggested Amendments. ¬ S. 5(b) definition of banking to include electronic and internet banking. ¬S. 5(c) ‘banking policy’ to include prudential norms within its meaning. ¬S. 6(2) power to RBI to notify additional forms of business. 3/15/2018 NVD 13

Suggested Amendments continued. ¬ Raising minimum Capital requirement existing entry level norms much below the proposed level. Time to be given to the banks to reach this level. S 11(2) ¬ New sections to regulate acquisition of shares but no right to take-over management. is provided in case of undesirable elements. S. 12(2 A). 3/15/2018 NVD 14

Suggested Amendments continued. ¬ Reciprocatory Supervision to be introduced for the foreign banks. S 22(3 A). ¬ Power to cancel license or cease and desist, on failure to comply direction u/s 35 A. S. 22(4). 3/15/2018 NVD 15

Suggested Amendments continued. ¬ New subsections casting legal duties on Auditors to report compliance. S. 30(4)&(5). ¬ Introduction of a new part IID to enable RBI to regulate Developmental financial institutions with regard to certain matters like Exim Bank, IDFC, IFCI Etc. 3/15/2018 NVD 16

Issues to Ponder. ¬ Whether the existing Act and even proposed amendments are adequate to cater to the modern banking and financial regulatory regime. . ¬ Whethere is a need for a fresh new Act or undertake codification of entire law on the subject in the place of the existing Act. 3/15/2018 NVD 17

Banking Reforms-Transactional View. ¬ Electronic Banking and Payment System related Issues under Payment & Settlement Systems Regulation Act, 2007. ¬ National Payment Council &Board for National Payment Systems ¬ Setting up of NPCIL- a S. 25 company. ¬ RTGS & High value Transfer of funds ¬ NEFT and High volume Transfer of funds. 3/15/2018 NVD 18 ¬ Debit Transfer and Credit Transfers.

Banking Reforms-Transactional View. ¬ Information Technology Act-good for governance & not for business/commerce. ¬Digital signature in Banking non-starter. ¬ Need to consider issues like Data Protection & Privacy in the electronic medium in the light of IT Act provisions. ¬ Need to revive Communication Convergence Bill. 2001. 3/15/2018 NVD 19

Banking Reforms-Transactional View. ¬ Banker-Customer Relationship. ¬ KYC Norms- Introduction-documents like Passport, PAN card etc. -from point of Money laundering Act. -Suspicious transactions. ¬Financial inclusion and KYC norms. ¬ AEPS (UID) solution. 3/15/2018 NVD 20

Banking Reforms-Transactional View. ¬ Universal Banking. Concept of all banking under one roof. ¬ Includes Investment banking, retail and wholesale banking and develoment banking comprising short term and long term lending. ¬ Khan committee first to moot this concept in India. 3/15/2018 NVD 21

Banking Reforms-Transactional View. ¬ Securitisation and Asset reconstruction. ¬Position of Injunctive power. ¬ Additional Responsibilities of banks. ¬ Limitation to Injunctive power. ¬ Deemed foreclosure till day of redemption, if done. ¬ Mardia chemicals case. 3/15/2018 NVD 22

Banking Reforms-Transactional View. contd. ¬Basis for securitisation-security interest creation for the secured lending. Lenders’ liability. ¬Steps-Creation- Validity/ Possession. Registration and Publicity. Prioritisation-Notice. Enforcement of the Security 3/15/2018 NVD 23

Banking Reforms-Transactional View. ¬ Banking frauds-Various dimensions including Cyber frauds. ¬ Dr. Mitra’s Report-recommended establishing a Bureau for investigating serious financial fraud & a fast track special court. ¬ Report in 2 parts, first dealing with preventive aspect as good governance & second dealing with prohibition of financial fraud &introduction of a deterrent jurisprudence. 3/15/2018 NVD 24

Banking Reforms-Transactional View. ¬ Recommended measures like: ¬ Best practice code and its internalisation. ¬ Internal checks and internal control. ¬ Legal compliance Audit. ¬ Data building on discretionary power &its monitoring. ¬ Appropriate incentive System ¬ Liability of the accounting , auditing profession ¬ Responsibility of RBI in frauds reported by banks. ¬ A separate statute, ‘Financial Fraud, (Investigation etc. )Act, 2001. 3/15/2018 NVD 25

Banking Reforms-Transactional View. ¬ Amendments to the N. I. Act to provide for electronic based cheque and cheque truncation. ¬ Credit Information Companies Regulation Act, 2005 ¬ --Deals with information privacy principles and reporting of credit information with regulation of such companies. ¬ Govt. Securities Act, 2006 replaces Public Debt Act, 1944. ¬ --Provide for dematerialised holding of securities, opening and maintenance of SGL & CSGL accounts & pledge, hypothecation, and lien on GS without transfer of securities. 3/15/2018 NVD 26

Banking Reforms-Transactional View. Thank You 3/15/2018 NVD 27