TRANSFER AND VESTING OF THE UNDERTAKING OF DEVELOPMENT BANK IN COMPANYCentral
Section 3 of The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
- (1)On such date as the Central Government may, by notification, appoint, there shall be transferred to, and vest in, the Company, the undertaking of Development Bank.
- (2)Notwithstanding anything contained in the Banking Regulation Act, 1949 (10 of 1949), the Company referred to in sub-section (1) shall be deemed to be a banking company within the meaning of clause (c) of section 5 of the Banking Regulation Act, 1949 and as such shall carry on banking business in accordance with the provisions of that Act, 1***: Provided that such Company shall not be required to--
- (a)obtain licence under section 22 of the Banking Regulation Act, 1949 (10 of 1949);
- (b)maintain for a period of five years from the appointed day the percentage of assets required to be maintained under section 24 of the said Act. 2[Provided further that the provisions of clause (a) to the proviso, shall cease to be applicable immediately after the commencement of Part XIII of the Finance Act, 2021 (13 of 2021), and from such commencement, the Company shall be deemed to have obtained licence under section 22 of the Banking Regulation Act, 1949 (10 of 1949).]
- (3)The provisions of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, to the extent they are not repugnant to any provision of this Act, apply to such Company.
- (4)Notwithstanding anything contained in the Banking Regulation Act,1949 (10 of 1949), the Central Government may, in consultation with the Reserve Bank of India, by notification, direct that any of the provisions of that Act specified in the notification--
- (a)shall not apply to the Company; or
- (b)shall apply to the Company, only with such exceptions, modifications and the adaptations as may be specified in the notification.
- (5)A copy of every notification proposed to be issued under sub-section (4), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.
Summary
- The entire business and property of the old Development Bank transfers directly to the new Company on a date set by the government.
- The new Company is treated as a regular banking company under the Banking Regulation Act, 1949.
- Initially, the Company did not need to get a banking licence under Section 22, but after the Finance Act, 2021, it is simply treated as having obtained this licence.
- The Company is excused from keeping the usual percentage of assets, known as liquidity requirements, required under Section 24 for five years from the starting day.
- The Central Government can consult with the Reserve Bank of India to exempt the Company from certain banking rules or change how those rules apply.
- Any proposed rule changes must be presented in draft form to both Houses of Parliament for thirty days while they are in session.
Practical examples
1In November 2005, a local business owner named Vikram applied for a loan at the newly formed bank, which was operating legally as a registered banking company without needing to show a paper licence under Section 22 because of this law's transition rules.
2In 2006, the Reserve Bank inspected the Company's books and confirmed that it did not need to hold the standard high percentage of liquid assets under Section 24, as it was within its five year exemption period.
FAQ
1. Does the new Company need to apply for a standard banking licence right away?
No, under the original rule, the Company was exempt from obtaining a licence under Section 22 of the Banking Regulation Act, 1949, and after the Finance Act, 2021, it is officially deemed to have obtained it.
2. For how long is the Company exempt from holding the asset percentages required under Section 24 of the Banking Regulation Act?
The Company is exempt from maintaining these asset percentages for a period of five years starting from the appointed day.
3. Who must the Central Government consult before exempting the Company from any banking rules?
The Central Government must consult with the Reserve Bank of India.
4. How long must a draft notification to modify banking rules sit before Parliament?
The draft notification must be laid before each House of Parliament for a total period of thirty days while it is in session.
Test yourself
Q1.What status does the Company receive under Section 3?
Q2.Under which section of the Banking Regulation Act, 1949 was the Company originally exempt from obtaining a licence?
Q3.How many years is the Company exempt from maintaining the percentage of assets under Section 24?
Q4.Which body must the Central Government consult before directing that certain banking provisions do not apply to the Company?
Q5.For what total period must a proposed draft notification be laid before each House of Parliament?