The Reserve Bank of India (RBI) Tuesday cracked its whip on Mumbai-based Punjab and Maharashtra Cooperative (PMC) Bank placing several restrictions on it for six months.
While the bank cannot issue loans or open any fixed deposit accounts until February 2020, the RBI has also imposed a Rs 1,000-withdrawal limit on transactions by the account holders.
The apex bank has imposed the said directions under Section 35A of the Banking Regulation Act, 1949. Let's understand what is this act and what powers is the RBI vested with under it.
What does Section 35A of the Banking Regulation Act state?
Section 35A of the Banking Regulation Act, 1949 vests power in the RBI to give directions to banks and can take action, "to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company".
The RBI under the act can also impose restrictions on banks to ensure better governance and control. Meanwhile, Section 56 of the act is applicable to cooperative societies.
What is Banking Regulation Act?
The Banking Regulation Act legislated in the year 1949 comprises a set of rules which govern the banking sector in India. The act vests powers in the RBI to grant licenses to banks as well as work as a banking regulator in India.
The RBI has also enforced similar sanctions on several banks in the past and co-operative banks in particular. The apex bank earlier this month had enforced such sanctions on Osmanabad-based Vasantdada Nagari Sahakari Bank, Vithalrao Vikhe Patil Co-operative Bank in Nashik and Karad Janta Sahakari Bank.
The central bank in May this year had levied financial restraints on Goa-based The Madgaum Urban Co-operative Bank and placed Rs 5,000 withdrawal restrictions on account holders.