Banking works on public trust. But trust alone is not enough. A strong legal system is required to control how banks function, lend money, accept deposits, and protect customers. In India, the banking system is mainly regulated by the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The Reserve Bank of India (RBI), along with the Government of India, has full authority to regulate banks from their beginning to their closure.
For JAIIB AFM 2026, this topic is very important because many questions are directly based on sections of the Banking Regulation Act and RBI powers. In this blog, we have covered all the topics under Regulation of Banking Business in detail. Additionally, we have provided a direct link to download the eBook.
Download Regulation of Banking Business eBook
The direct link to download the Regulation of Banking Business PDF is given below.
What does Regulation of Banking Business mean?
Regulation of Banking Business refers to the legal framework through which banking activities in India are controlled and supervised to ensure financial stability, depositor protection, and proper governance. It is mainly governed by the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949, under which the Reserve Bank of India regulates banks from their establishment to their closure, including control over deposits, loans, interest rates, and overall management.
In which JAIIB module is the “Regulation of Banking Business” topic covered?
The topic “Regulation of Banking Business” is part of the JAIIB AFM Paper, Module C, which focuses on legal and regulatory aspects of banking operations. This section explains the regulatory framework governing banks in India, the powers of the RBI, key provisions of the Banking Regulation Act, control over deposits and advances, nomination rules, and interest rate regulation, making it essential for both exam preparation and practical banking understanding.
| Field | Details |
| Paper / Module | Accounting & Financial Management for Bankers (AFM) – Module C |
| Focus Areas | Regulatory framework, RBI powers, legal control over banking operations |
| Topics Covered | – Overview of Regulation of Banking Business – RBI Act, 1934 and Banking Regulation Act, 1949 – Power of RBI to issue directions (Sections 21, 35A, 36) – Regulation of deposits and unclaimed deposits (Section 26) – Nomination provisions (Sections 45ZA, 45ZC, 45ZE) – Regulation of loans and advances (Sections 20, 20A, 21) – Regulation of interest rates |
| Exam Dates 2026 | May Cycle: 10th May 2026 November Cycle: 28th November 2026 |
What is the legal framework for regulation of banking business in India?
Banking in India is controlled by specific laws. These laws give power to the RBI and the Government of India to regulate, supervise, and control banks. The RBI works as the central bank of the country and performs the role of regulator, supervisor, and facilitator of the banking system. These laws apply to banks from the time they start operations until they close down.
| Law | Role |
| Reserve Bank of India Act, 1934 | Establishes RBI and gives it central banking powers |
| Banking Regulation Act, 1949 | Controls how banks operate and function |
| RBI | Regulates, supervises, and facilitates banking |
| Government of India | Exercises legislative and overall control |
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What is the power of RBI to issue directions to banks?
The RBI has legal authority to give instructions to banks. These powers are clearly mentioned in different sections of the Banking Regulation Act, 1949. The purpose of these powers is to protect depositors, control lending, and ensure that banks do not act against public interest. RBI can also stop harmful banking activities.
| Section | What it Says | Meaning in Simple Words |
| Section 21 | Power to control advances | RBI can direct banks on how much and to whom loans can be given |
| Section 35A | Power to issue directions | RBI can give instructions to protect depositors and ensure proper management |
| Section 36 | Power to caution or prohibit | RBI can warn or stop banks from certain transactions |
How is acceptance of deposits regulated under banking law?
Deposits are the foundation of banking. Although the Banking Regulation Act does not have a separate detailed section only for deposit acceptance, RBI regulates it using its general powers under Section 35A. Banks must also follow rules related to unclaimed deposits.
- There is no specific detailed section only for deposit acceptance.
- RBI uses Section 35A to regulate deposit-related matters.
- RBI can issue directions in public interest.
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What are the rules for unclaimed deposits?
Banks must report unclaimed deposits every year as per the Banking Regulation Act. This ensures transparency and protects customer money.
| Provision | Requirement |
| Section 26 | Banks must submit annual return of unclaimed deposits |
| Time Limit | Within 30 days after end of calendar year |
| Period Covered | Deposits not operated for 10 years |
| Fixed Deposits | 10 years counted from date of maturity |
What are the nomination provisions under the Banking Regulation Act?
Nomination facility protects customers in case of death. It allows a person to name someone who will receive the deposit, locker contents, or safe custody articles. This avoids legal complications and gives quick settlement.
The Banking Regulation Act provides separate provisions for deposits and for safe custody/lockers.
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Nomination for Safe Custody and Lockers
Under Sections 45ZC and 45ZE:
- A person placing items in safe custody can nominate someone.
- A locker holder can nominate a person.
- After death, the nominee can receive articles or remove locker contents.
- The bank gets valid discharge after handing over to nominee.
- Governed by Banking Companies (Nomination) Rules, 1985 (Rules 3 & 4).
| Section | Covers | Key Point |
| 45ZC | Safe custody articles | Nominee receives article after death |
| 45ZE | Safety lockers | Nominee can remove locker contents |
| Nomination Rules 1985 | Procedure | Governs form and method |
Nomination for Deposits (Section 45ZA)
This section applies when deposits are held in the name of one or more persons.
- Depositor(s) can nominate one person.
- In case of death, nominee gets rights over deposit.
- Nomination can be cancelled or modified.
- If nominee is minor, another person can be appointed to receive deposit on behalf of minor.
| Section | Applies To | Important Feature |
| 45ZA | Deposits | Nominee entitled to deposit on death of depositor |
How does RBI regulate loans, advances, and interest rates?
Lending is a core banking function. To prevent misuse and risky lending, RBI controls loans and advances through specific sections of the Banking Regulation Act. RBI also regulates interest rates charged by banks.
Regulation of Loans and Advances
This section explains how the RBI controls and monitors the lending activities of banks to ensure responsible credit management and financial stability.
| Section | Purpose | Meaning |
| Section 21 | Control of advances | RBI can limit or direct lending |
| Section 35A | General directions | Broad power to regulate lending activities |
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Restrictions on Loans and Remission of Debt
This section covers the legal limits placed on banks while granting loans and the conditions under which they can remit or write off debts, including the need for prior RBI approval.
| Section | Provision | Explanation |
| Section 20 | Limits on loans and advances | Certain restrictions on giving loans |
| Section 20A | Remission of debt | Bank must take prior RBI approval before remitting any debt to its orders |
Regulation of Interest Rates
Under Section 21 read with Section 35A:
- RBI has authority to regulate interest rates.
- RBI can direct banks regarding lending rates.
This ensures fair and controlled lending practices.
FAQs
Banking in India is regulated by the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949.
The Reserve Bank of India regulates and supervises banks in India.
The Government of India has overall legislative control over banking.
Section 35A empowers RBI to issue directions to protect depositors and ensure proper bank management.
Section 36 allows RBI to caution or prohibit banks from certain transactions.
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