India's financial and banking ecosystem is built on a strong legal foundation. Several legislative acts and regulatory frameworks govern everything from central banking operations to consumer rights, loan recovery, digital payments, and taxation. Whether you're preparing for a PSU interview, working in BFSI, or building a fintech product, understanding these Acts is essential.
Core Banking Acts
1. Reserve Bank of India (RBI) Act, 1934
Purpose: Establishes the Reserve Bank of India as the central authority for monetary control. Key Functions:
Issuance of currency
Regulation of banks
Formulation and execution of monetary policy
Financial system stability
2. Banking Regulation Act, 1949
Purpose: Provides a framework for regulating all banking institutions in India. Key Provisions:
Licensing (Section 22)
Capital adequacy and audits
RBI powers for inspection and management control
Applicable to scheduled and cooperative banks
3. Negotiable Instruments Act, 1881
Purpose: Governs instruments like cheques, bills of exchange, and promissory notes. Key Sections:
Section 138: Bouncing of cheque is a punishable offence
Section 139: Presumption in favor of cheque holder
4. SARFAESI Act, 2002
Purpose: Empowers banks to recover NPAs without court intervention. Key Features:
Seizing and auctioning defaulted assets
Working with Asset Reconstruction Companies
Applicable for secured loans above Rs. 1 lakh
5. Indian Contract Act, 1872
Purpose: Legal framework for all contracts in India. Relevance:
Loan documentation
Guarantees and indemnities
Customer onboarding
6. Companies Act, 2013
Purpose: Governs corporate entities in India. Use in Banking:
Lending to companies
Governance and compliance of borrowers
Digital and Technological Acts
7. Payment and Settlement Systems Act, 2007
Purpose: Provides legal backing to RBI for regulating digital payment systems. Relevance: RTGS, NEFT, UPI, wallets, payment aggregators
8. Information Technology Act, 2000
Purpose: Facilitates electronic governance and cyber security. Use in Banking:
Digital signatures
E-banking platforms
Cybercrime prevention
Regulatory and Compliance Acts
9. Prevention of Money Laundering Act (PMLA), 2002
Purpose: Prevents and penalizes money laundering. Relevance:
Mandatory KYC
Suspicious Transaction Reporting
AML compliance
10. FEMA (Foreign Exchange Management Act), 1999
Purpose: Controls cross-border forex transactions. Banking Use:
NRI accounts
Foreign investments
Trade finance
11. Insolvency and Bankruptcy Code (IBC), 2016
Purpose: Provides time-bound resolution of insolvent companies and individuals. Impact:
Faster bad loan recovery
Legal framework for insolvency professionals
12. Credit Information Companies (Regulation) Act, 2005
Purpose: Governs credit bureaus such as CIBIL. Use in Banking:
Risk-based lending decisions
Customer credit profiling
13. Consumer Protection Act, 2019
Purpose: Safeguards consumer rights. Banking Context: ATM frauds, unauthorized debits, customer grievances
14. Right to Information (RTI) Act, 2005
Purpose: Promotes transparency in public institutions. Relevance: Public sector banks, RBI disclosures
15. Depositories Act, 1996
Purpose: Enables electronic maintenance and transfer of securities. Banking Relevance: Banks as Depository Participants for demat services
Income Tax Sections Relevant to Banking
16. Section 80C (Income Tax Act, 1961)
Purpose: Allows deduction up to Rs. 1.5 lakh for eligible investments. Banking Relevance:
PPF
5-year Tax Saving FDs
NSC, ELSS, LIC premiums
17. Section 80D
Purpose: Deduction for health insurance premium payments. Banking Relevance: Cross-sold via bancassurance
18. Section 10(14)
Purpose: Exemption for allowances like HRA, LTA, etc. Banking Use: Used in calculating net salary for loan eligibility
19. Section 134A (Companies Act)
Purpose: Mandates companies to disclose CSR and Board decisions. Relevance for Banks: CSR compliance during credit assessment
Bonus Acts Worth Knowing
Final Thoughts
These Acts form the legislative bedrock of India’s banking and financial systems. Whether you are an aspirant, a banker, or a fintech professional, knowing the legal environment is essential to building trust, ensuring compliance, and contributing to a more transparent, secure financial ecosystem.