Lawgist18Cash reserve
1[18. Cash reserve.--(1) Every banking company, not being a scheduled bank, 2 [shall maintain in India on a daily basis] by way of cash reserve with itself or by way of balance in a current account with the Reserve Bank, or by way of net balance in current accounts or in one or more of the aforesaid ways, a sum equivalent to 3[such per cent.] of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight 4[as the Reserve Bank may specify, by notification in the Official Gazette, from time to time, having regard to the needs of securing the monetary stability in the country] and shall submit to the Reserve Bank before the twentieth day of every month a return showing the amount so held on alternate Fridays during a month with particulars of its demand and time liabilities in India on such Fridays or if any such Friday is a public holiday under the Negotiable Instruments Act, 1881 (26 of 1881), at the close of business on the preceding working day.
Explanation.--In this section, and in section 24,--
(a) "liabilities in India" shall not include--
(i) the paid-up capital or the reserves or any credit balance in the profit and loss account of the banking company;
(ii) any advance taken from the Reserve Bank 5*** or from the Exim Bank 6[or from the Reconstruction Bank 7[or from the National Housing Bank]] or from the National Bank 8[, or from the small Industries Bank,] by the banking company;
(iii) in the case of a Regional Rural Bank, also any loan taken by such bank from its Sponsor Bank;
(b) "fortnight" shall mean the period from Saturday to the second following Friday, both days inclusive;
(c) "net balance in current accounts" shall, in relation to a banking company, mean the excess, if any, of the aggregate of the credit balances in current account maintained by that banking company with the State Bank of India or a subsidiary bank or a corresponding new bank over the aggregate of the credit balances in current account held by the said banks with such banking company;
(d) for the purposes of computation of liabilities, the aggregate of the liabilities of a banking company to the State Bank of India, a subsidiary bank, a corresponding new bank, a regional rural bank, another banking company, a co-operative bank or any other financial institution notified by the Central Government in this behalf, shall be reduce by the aggregate of the liabilities of all such banks institutions to the banking company;
(e) the expression "co-operative bank" shall have the meaning assigned to it in clause (cci) of section 56.
9[(1A) If the balance held by such banking company at the close of business on any day is below the minimum specified under sub-section (1), such banking company shall, without prejudice to the provisions of any other law for the time being in force, be liable to pay to the Reserve Bank, in respect of that day, penal interest at a rate of three per cent. above the bank rate on the amount by which such balance falls short of the specified minimum, and if the shortfall continues further, the penal interest so charged shall be increased to a rate of five per cent. above the bank rate in respect of each subsequent day during which the default continues.
(1B) Notwithstanding anything contained in this section, if the Reserve Bank, is satisfied, on an application in writing by the defaulting banking company, that such defaulting banking company had sufficient cause for its failure to company with the provisions of sub-section (1), it may not demand the payment of the penal interest.
(1C) The Reserve Bank may, for such period and subject to such conditions as may be specified, grant to any banking company such exemptions from the provisions of this section as it thinks fit with reference to all or any of its offices or with reference to the whole or any part of its assets and liabilities.]
(2) The Reserve Bank may, for the purposes of this section and section 24, specify from time to time, with reference to any transaction or class of transactions, that such transaction or transactions shall be regarded as liability in India of a banking company and, if any question arises as to whether any transaction or class of transactions shall be regarded for the purposes of this section and section 24 as liability in India of a banking company, the decision of the Reserve Bank thereon shall be final.]
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1. Subs. by Act 1 of 1984, s. 21, for section 18 (w.e.f. 29-3-1985).
2. Subs. by Act 4 of 2013, s. 6, for "shall maintain in India" (w.e.f. 18-1-2013).
3. Subs. by s. 6, ibid., for "at least three per cent." (w.e.f. 18-1-2013).
4. Ins. by s. 6, ibid. (w.e.f. 18-1-2013).
5. The words "or from the Development Bank" omitted by s. 6, ibid. (w.e.f. 18-1-2013).
6. Ins. by Act 62 of 1984, s. 71 and the Third Schedule (w.e.f. 20-3-1985).
7. Ins. by Act 53 of 1987, s. 56 and the Second Schedule (w.e.f. 9-7-1988).
8. Ins. by Act 39 of 1989, s. 53 and the Second Schedule (w.e.f. 7-3-1990).
9. Ins. by Act 4 of 2013, s. 6 (w.e.f. 18-1-2013).
- 6 Form of business in which banking companies may engage
- 7 Use of words "bank", "banker", "banking" or "banking company"
- 8 Prohibition of trading
- 9 Disposal of non-banking assets
- 10 Prohibition of employment of managing agents and restrictions on certain forms of employment
- 10A Board of directors to include persons with professional or other experience
- 10B Banking company to be managed by whole time chairman
- 10BB Power of Reserve Bank to appoint chairman of the Board of directors appointed on a whole-time basis or a managing director of a banking company
- 10C Chairman and certain directors not to be required to hold qualification shares
- 10D Provisions of sections 10A and 10B to override all other laws, contracts, etc
- 11 Requirement as to minimum paid-up capital and reserves
- 12 Regulation of paid-up capital, subscribed capital and authorised capital and voting rights of shareholders
- 12A Election of new directors
- 12B Regulation of acquisition of shares or voting rights
- 13 Restriction on commission, brokerage, discount, etc., on sale of shares
- 14 Prohibition of charge on unpaid capital
- 14A Prohibition of floating charge on assets
- 15 Restrictions as to payment of dividend
- 16 Prohibition of common directors
- 17 Reserve Fund
- 18 Cash reserve
- 19 Restriction on nature of subsidiary companies
- 20 Restrictions on loans and advances
- 20A Restrictions on power to remit debts
- 21 Power of Reserve Bank to control advances by banking companies
- 21A Rates of interest charged by banking companies not to be subject to scrutiny by courts
- 22 Licensing of banking companies
- 23 Restrictions on opening of new, and transfer of existing, places of business
- 24 Maintenance of a percentage of assets
- 25 Assets in India
- 26 Return of unclaimed deposits
- 26A Establishment of Depositor Education and Awareness Fund
- 27 Monthly returns and power to call for other returns and information
- 28 Power to publish information
- 29 Accounts and balance-sheet
- 29A Power in respect of associate enterprises
- 30 Audit
- 31 Submission of returns
- 32 Copies of balance-sheets and accounts to be sent to registrar
- 33 Display of audited balance-sheet by companies incorporated outside India
- 34 Accounting provision of this Act not retrospective
- 34A Production of documents of confidential nature
- 35 Inspection
- 35A Power of the Reserve Bank to give directions
- 35AA Power of the Central Government to authorize Reserve Bank for issuing directions to banking companies to initiate insolvency resolution process
- 35AB Power of Reserve Bank to issue directions in respect of stressed assets
- 35B Amendments of provisions relating to appointments of managing directors, etc., to be subject to previous approval of the Reserve Bank
- 36 Further powers and functions of Reserve Bank
- 36A Certain provisions of the Act not to apply to certain banking companies
