Banking and Finance
By Y. SRINIVASA RAO, Principal Senior Civil Judge, Tirupati.
The first Bank in India was In 1770, the Bank of Hindustan was established in India. It was first Bank and was liquidated in 1829 – 1832. Of course, General Bank of India was established in 1876 but it failed in 1791. Now, we are in modern Banking. State Bank of India is the largest Bank in India. That too, it is the oldest Bank. During the period of 1809, the State Bank of India was originated and worked as Bank of Calcutta. In fact, it was renamed as Bank of Bengal. This Bank was then founded by the Presidency of Government. In 1955,
it became State Bank of India. Under the Reserve Bank of India Act, 1934, in 1935, Reserve Bank of India was established. A significant step in the Indian Banking and Finance is that in 1969, 14 private Banks were nationalized. Out of these private Banks, the Bank of India is one of the biggest private banks.
Banking sector in India:- As per Section 45-IA in Chapter III B of 1934 Act, a non-banking financial company cannot commence or carry on the business as a ‘non- banking financial institution’ without obtaining a certificate of registration issued under that Chapter. Business of ‘non banking financial institution’, as per that section, means carrying on the business of a financial institution referred to in Clause (C) and includes business of non banking financial company referred to in Clause (F), which defines ‘Financial Institution’ and ‘Non-banking financial company’ respectively See. Vellanki Leasing and Finance Pvt. Ltd., Vs. Pfimex Pharmaceuticals Ltd., and others – 2008 (1) ALT(CRI.)(A.P) 259. In fact, there are mainly two categories of banking in Indian. Those are scheduled and non-scheduled banking system which can be found in Indian Banking sector. As to Indian Banking sector is concerned, the Reserve Bank of India Act, 1934 is an important enactment. The Scheduled Banks come under the purview of Second schedule of this Act. The State Bank of India, its associate banks, Regional rural banks, foreign banks and private sector banks are also come under the purview of second schedule of the Act. Commercial Banks refer to both scheduled and non-scheduled banks which come under the purview of the Banking Regulation Act, 1949. In Bank of India and another Vs. K. Mohandas and others – 2009 (5) SCJ 939 ( D.B. ), it was held that Public sector banks and are State within the meaning of Article 12 of the Constitution and their action even in contractual matters has to be reasonable, , lest it must attract the wrath of Article 14 of the Constitution.
Nationalisation of Banks:-
In 1969, the Government of India nationalized 14 banks. The following banks were nationalised in 1969:-
Indian Overseas Bank Punjab National Bank Bank of India
Bank of Maharashtra Central Bank of India UCO Bank
Union Bank and
United Bank of India. Syndicate Bank Allahabad Bank Bank of Baroda
The following banks were also nationalized in India in 1980. Those are:-
Punjab and Sind Bank Vijaya Bank
Oriental Bank of India Corporate Bank
New Bank of India (Note:- In 1993, New Bank of India was merged with Punjab National Bank).
In the early 1990s, the then government begins on a policy of liberalisation licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce IndusInd Bank, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC Bank.
Payments banks under Section 22 of the Banking Regulation Act, 1949:- This is one of significant factor in Indian Banking sector. Under this provision, a restricted deposit , which is now limited to One lakh rupees can be accepted by these banks. This types banks may offer saving accounts as well as current accounts. Further more, these bank may grant ATM cards to account holders and that thse bank may offer net banking (online), and mobile banking because these banks will be licensed as payments banks under Section 22 of the Banking Regulation Act,1949 and will be registered as public limited company under the Companies Act, 2013. Now, we can see the following Payment bank which are:
India Post Payments Bank Ltd.
Jio Payments Bank Ltd.
PayTm Payments Bank Ltd
Aditya Birla Idea Payments Bank Ltd. Airtel Payments Banks Ltd.
Fino Payments Bank Ltd.
Canara Bank Officers Congress,rep. by its Secretary, Hyderabad Petitioner. vs. The Govt of India, rep. by its Secretary, Ministry of Finance (Banking Operations), New Delhi and another Respondents. – 1996 (2) ALT 459
Besides the above, there are several small finace banks such as Capital Small Finance Bank Ltd; Utkarsh Small Finance Bank Ltd; ESAF Small Finance Bank Ltd etc. The total ATMs (Automated Teller Machine) installed in India by various banks as of 2018 was 2,38,000. In 2008 the Reserve Bank of India introduced a system to allow cheque truncation. It means that the conversion of checks from physical form to electronic form when sending to the paying bank. Physical as well as virtual expansion of banking through mobile banking, internet banking, tele banking, bio-metric and mobile ATMs etc. can be found in Indian in the Banking sector. However, a huge data breach on debit cards issued by various Indian banks was being reported. Recently, the State Bank of India announced the blocking and replacement of almost 600,000 debit cards.
Bank employee can take voluntary retirement :-
As per Regulation 29 of Pension Regulations, 1995, an employee can take voluntary retirement after 20 years of qualifying service and become eligible for pension. The other thing is that the Scheme provides that the employees with 15 years of service or 40 years of age shall be eligible to take voluntary retirement under the Scheme and under Regulation 29, the employees having rendered 15 years of service or completed 40 years of age but not completed 20 years of service shall not be eligible for pensionary benefits on taking voluntary retirement under the Scheme. The use of the words such employees in the communication is referable to employees having rendered 15 years of service but not completed 20 years of service and, therefore, it was decided to bring in amendment in the Regulations so that employees having not completed 20 years service do not loose the benefit of pension. The amendment in Regulation 28, as is reflected from the afore-referred communication, was intended to cover the employees who had rendered 15 years service but not completed 20 years service. It was not intended to cover the optees who had already completed 20 years service as the provisions contained in Regulation 29 met that contingency. See. Bank of India and another Vs. K. Mohandas and
others – 2009 (5) SCJ 939 ( D.B. ).
The Hon’ble Supreme Court held that the Union Government, however, must ensure that SFIO is effective in detecting and preventing bank frauds by influential people. Whether legislative and administrative measures taken by the Union Government have been effective or not is not for the Court but for the Union Government and Parliament to consider because reduction and control of NPAs are not within the domain of judiciary but within the domain of the Executive and Legislature under our Constitution. As to the issue of NPA is concerned, the Government submits that a number of steps have already been taken by the Ministry of finance, Government of India, to address the issue of NPAs and bank frauds and these are: action taken under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for short the DRT Act) to recover the NPAs of Banks, the enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act) which empowers the banks to realize the securities furnished by the borrowers to the bank and to recover the loans and advances from the defaulted borrowers, the enactment of the Credit Information Companies (Regulation) Act, 2005 which provides for the setting up of Credit Information Companies for collection, sharing and dissemination of credit information, which will help in arresting fresh accretion of NPAs and framing of the rules under the Credit Information Companies (Regulation) Act, 2005, which would ensure that the Credit Information Companies collect, process and collate accurate and complete data relating to the borrowers, so that fresh loans and advances given to the borrowers do not become sticky.
In Vishaka and others v. State of Rajasthan and others [(1997) 6 SCC 241] for the proposition that if there is no enacted legislation to provide for the effective enforcement of any fundamental right, this Court can issue guidelines/directions for the effective enforcement of the fundamental right under Article 32 of the Constitution, which would be law under Article 141 of the Constitution, till a suitable legislation is enacted to occupy the field.
In Vineet Narian and others v. Union of India and another, [(1998) 1 SCC 226] in which this Court has observed that the judiciary must step in, in exercise of its constitutional obligations under Article 32 read with Article 142 of the Constitution, to provide a solution till such time as the legislature acts to perform its role by enacting proper legislation to cover the field.
In a recent decision of this Court in Villianur Iyarkkai Padukappu Maiyam v. Union of India and others, [2009 (6) SCJ 912 = (2009) 7 SCC 561], Panchal, J. writing the judgment on behalf of a three- Judge Bench observed:
It is neither within the domain of the courts nor the scope of judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Nor are the courts inclined to strike down a policy at the behest of a petitioner merely because it has been urged that a different policy would have been fairer or wiser or more scientific or more logical. Wisdom and advisability of economic policy are ordinarily not amenable to judicial review. In matters relating to economic issues the Government has, while taking a decision, right to trial and error as long as both trial and error are bona fide and within the limits of the authority. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts.
In The Union Government, however, must ensure that SFIO is effective in detecting and preventing bank frauds by influential people. We find that the Central Government has constituted a Committee of Experts under the Chairmanship of Shri Vepa Kamesam, Ex-Deputy Governor of Reserve Bank of India, with the following terms of reference:
(a) Assessment of the need for and details of a separate stature to govern the constitution and functioning of SFIO;
(b) The nature and details of the legislative changes as may be required in existing laws, to enable effective functioning of SFIO including prosecution of offences detected by it;
(c) The mechanism for referral of cases to SFIO and co-ordination of activities of SFIO with other agencies/organizations of the Central and State Governments, including investigating;
(d) Powers of SFIO and its investigation officers;
(e) Specification of offences and penalties to enable effective conduct of investigation agencies and the need for Special Courts for trial of corporate fraud cases; and
(f) Other matters consequential to or in pursuance of the above.
We have no doubt that this Committee of Experts under the Chairmanship of Ex-Deputy Governor of Reserve Bank of India will suggest effective measures, legislative or administrative, to ensure that bank frauds are prevented in future and the NPAs are kept to the minimum. We hope and trust that this Committee under the Chairmanship of Ex-Deputy Governor of Reserve Bank of India will consider the suggestion to make the SFIO (or any similar body) a statutory authority having sufficient powers and having the required autonomy to be able to effectively deal with the problems of bank frauds and NPAs. A copy of this order will be placed by the respondent No.1 before the Committee of Experts. See. Common Cause (A Regd. Society) Vs. Union of India and another (2010 (7) SCJ 403. (Division Bench).
Financial system in India:
A system which allows the exchange of funds between lenders, borrowers and investors is called as ”financial system”. Financial system aims to establish a regular and effective linkage investors and depositors.
The medium of exchange in financial system is credit, finace and money. In modern days, in finacial system may include financial markes, private and public sectors, and financial instruments. Non-banking finacial institutions, financial markets, financial instruments, financial services are come under the financial system. This system allows funds to be invested between economic sector. A financial institution grants financial service to its clients and members. It is significant to see that Banks are known financial intermediaries because bank lend money borrowers and they accept depostis from customers. Banks include Cooperative banks, Public banks, Centra banks, Commercial banks and state managed land development banks. Financial markets facilitate buying and selling assets, claims, securities and services. There are organized and unorganized financial markets in Indian Financial system. Financial instruments are limited in supply and those non-standarized in character. In fact, financial claims such as assets and securities which are delat in financial market are usually referred to as ‘financial instruments’. Liquidity, marketability, collateral value, tax status, risk and uncertainty, maturity period, transferability , ROI (information as to earning of nominal and real returns), and price fluctuations are the main characteristics of financial instruments.
The financial system encourages both savings and investments by providing a ideal linkage between investors and depositors. It facilitates expansion of financial markets. Further, it promotes allocation of financial sources for the purpose of socially desirable and economically productive. It influences the pace of economic development in the country. Indian financial system is regulated by SEBI (Securities and Exchange Board of India), RBI (Reserve Bank of India), Development of Banking and Insurance, Government of India through catena of legislations.
Conclusion:- Now, it is being urged the banks to work to develop applications for digital currency and distruted ledgers. As a measure of safety and security, all settlement operations are being computerised as per the guidelines of RBI. Moreover, as has been observed by P.N. Bhagwati, J. in State of M.P. and others v. Nandlal Jaiswal and others [(1986) 4 SCC 566] in field of economic activities, there has to be judicial deference to Legislative and Executive judgment and decisions on complex economic matters are to be based on experimentation or what one may call trial and error method. It is therefore not for Courts to sit in judgment whether a particular policy decision of the Government is effective or not, but for Parliament to debate and decide on the policy decision. See. Common Cause (A Regd. Society)’s case – 2010 (7) SCJ 403 ( D.B.). To sum up, this article, it is important to mention that The financial system encourages both savings and investments by providing a ideal linkage between investors and depositors and also facilitates expansion of financial markets. Suffice it to say that it promotes allocation of financial sources for the purpose of socially desirable and economically productives and influences the pace of economic development in the country. Indian financial system is regulated by SEBI (Securities and Exchange Board of India), RBI (Reserve Bank of India), Development of Banking and Insurance, Government of India through superfluity of enactments and regulations.