CHAPTER III-C of RBI Act 1934 — UNINCORPORATED BODIES

Section 45R of RBI Act 1934 — Interpretation

Terms used in Chapter III-C have meanings assigned in Chapter IIIB.

Section 45S — Deposits by unincorporated bodies

🔥 Important.

Individuals/firms/unincorporated associations cannot accept deposits where their business falls within specified financial activities or where principal business involves deposit-taking/lending.

Purpose

Prevent unregulated deposit-taking.

Section 45T — Search warrants

Court can issue search warrant where there is reason to believe documents relating to prohibited deposit acceptance are hidden.

Simple

45S = prohibition
45T = enforcement/search

CHAPTER III-D — DERIVATIVES, MONEY MARKET & SECURITIES

Section 45U — Definitions

Important definitions:

Derivative

Instrument whose value derives from:

Interest rate
FX rate
Credit rating/index
Securities price etc.

Includes:

Interest rate swaps
Forward rate agreements
Currency swaps
Options etc.

Money market instruments

Includes:

Call/notice money
Term money
Repo
Reverse repo
CD
CP
Other instruments up to one year as specified.

Repo

Borrowing funds by selling securities with agreement to repurchase.

Reverse Repo

Lending funds by purchasing securities with agreement to resell.

Memory

Repo = RBI/bank borrows
Reverse repo = RBI/bank lends

Section 45V — Derivative transactions

Specified derivative transactions are legally valid if at least one party is:

RBI
Scheduled bank
Specified regulated agency.

Section 45W — RBI power to regulate financial markets

RBI can regulate:

Interest rates
Interest-rate products
Securities
Money market instruments
Foreign exchange
Derivatives
Similar instruments.

RBI can:

Issue directions.
Call information.
Inspect agencies.

Exam Hook

45W = Market regulation power.

Section 45X — Duty to comply

Directors/members/managers of regulated agencies must:

Comply with RBI directions.
Furnish information required by RBI.

CHAPTER III-E — JOINT MECHANISM

Section 45Y — Joint regulatory mechanism

If disagreement arises regarding whether an instrument is:

Money-market
Securities-market
Insurance
Pension
Hybrid/composite

instrument, the matter can go to a Joint Committee.

Committee includes:

Union Finance Minister
RBI Governor
DEA Secretary
DFS Secretary
IRDAI Chairperson
SEBI Chairperson
PFRDA Chairperson.

Decision is binding on relevant regulators.

Exam Hook

45Y = Who regulates a hybrid financial product? → Joint mechanism.

CHAPTER III-F — MONETARY POLICY

This is the heart of modern RBI Act.

Section 45Z — Chapter overrides

Monetary policy provisions override inconsistent provisions elsewhere in RBI Act.

Easy

45Z = Monetary Policy Chapter gets priority.

Section 45ZA — Inflation Target

🔥🔥🔥 Extremely important.

Central Government, in consultation with RBI:

Determines inflation target.
In terms of CPI.
Once every 5 years.
Notifies it in Official Gazette.

Exam Memory

Govt + RBI consultation → CPI → every 5 years.

Section 45ZB — Monetary Policy Committee

🔥🔥🔥🔥 Must know.

MPC has 6 members:

RBI side — 3

RBI Governor — Chairperson
Deputy Governor in charge of Monetary Policy
One RBI officer nominated by Central Board

Government side — 3

Three persons appointed by Central Government.

Main function

MPC determines the Policy Rate necessary to achieve inflation target.

Critical point

MPC decision is binding on RBI.

Killer memory

MPC = 3 RBI + 3 Government = 6

Section 45ZC — Eligibility & selection of Government nominees

Government-appointed MPC members must have:

Ability
Integrity
Standing
Knowledge/experience in:
- Economics
- Banking
- Finance
- Monetary policy.

Disqualifications include:

Age 70+
RBI Board/Committee membership
RBI employee
Public servant
MP/MLA
Insolvent
Certain convictions
Physical/mental incapacity
Material conflict of interest.

Selection is through Search-cum-Selection Committee.

Search Committee

Cabinet Secretary — Chair
RBI Governor/representative
DEA Secretary
3 experts nominated by Government.

Section 45ZD — Tenure

Government-appointed MPC members:

Term = 4 years
No reappointment.

Can resign with:

At least 6 weeks’ written notice.

Memory

MPC external member = 4 years, one term.

Section 45ZE — Removal of MPC member

Government can remove member for grounds including:

Insolvency
Physical/mental incapacity
Conviction involving moral turpitude
Failure to disclose material conflict
Absence from 3 consecutive meetings without leave
Conflicting financial interest
Taking prohibited position
Abuse of position detrimental to public interest.

Section 45ZF — Vacancy does not invalidate proceedings

MPC proceedings don’t become invalid merely because:

Vacancy exists
Appointment has defect
Procedural irregularity doesn’t affect merits.

Easy

Defective composition ≠ automatically defective decision.

Section 45ZG — Secretary to MPC

RBI appoints Secretary to MPC.

Function

Provide secretariat support.

Section 45ZH — Information to MPC

RBI must provide MPC members relevant information.

Members can request:

Data
Models
Analysis.

If information is provided to one member, it must be provided to all members.

Section 45ZI — MPC meetings

🔥🔥 Important numerical section.

Minimum

4 meetings per year.

Schedule

Published at least 1 week before first meeting of year.

Quorum

4 members, including:

Governor; or
In his absence, concerned Deputy Governor.

Voting

Each member = 1 vote.
Majority decides.
Equality → Governor has casting vote.

Votes must be recorded.

Members must state reasons for their votes.

Memory

MPC = 4 meetings + 4 quorum + 1 vote each + Governor casting vote.

Section 45ZJ — Implementation document

RBI must publish document explaining:

How it will implement MPC decision.
Any changes to implementation.

Section 45ZK — Publication of decision

After every MPC meeting:

RBI publishes MPC resolution.

Section 45ZL — Minutes

🔥 Important.

RBI publishes minutes on 14th day after meeting.

Minutes include:

Resolution
Vote of each member
Individual member’s reasoning.

Memory

MPC decision = immediately after meeting
MPC minutes = Day 14

Section 45ZM — Monetary Policy Report

RBI publishes once every six months.

Report covers:

Sources of inflation
Inflation forecasts for 6–18 months.

Memory

MPR = Half-yearly + inflation source + 6–18 month forecast.

Section 45ZN — Failure to maintain inflation target

If RBI fails to meet target, it must report to Central Government:

Reasons for failure
Remedial actions
Estimated time to achieve target.

Killer memory

Failure report = WHY + WHAT NEXT + BY WHEN

Section 45ZO — Rules

Central Government can make rules to implement Chapter III-F.

Includes:

MPC selection procedure
Appointment conditions
Other prescribed matters.

CHAPTER IV — GENERAL PROVISIONS

Section 46 — Contribution to Reserve Fund

Central Government transfers specified rupee securities to RBI Reserve Fund.

The Act specifies ₹5 crore in this provision.

Section 46A — National Rural Credit Funds

Deals with contributions to:

National Rural Credit (Long Term Operations) Fund
National Rural Credit (Stabilisation) Fund.

Exam

Historical/structural importance.

Section 46B

Repealed.

Section 46C — National Industrial Credit Fund

Creates/maintains fund for specified industrial credit operations.

Section 46D — National Housing Credit Fund

Fund used for specified support to National Housing Bank, including:

Loans/advances
Purchase of bonds/debentures.

Section 47 — Allocation of surplus profits

🔥 Important.

RBI first provides for:

Bad/doubtful debts
Depreciation
Staff/superannuation funds
Other required provisions.

Then:

Balance of profits → Central Government.

Exam Hook

RBI surplus ultimately goes to Central Government after statutory/proper provisioning.

Section 48 — Tax exemption

RBI is exempt from:

Income tax
Super tax

on its income/profits/gains under the provision.

Section 49 — Publication of Bank Rate

RBI publishes its standard rate at which it is prepared to:

Buy/re-discount eligible bills/commercial paper.

Memory

S.49 = Bank Rate publication.

Section 50 — Auditors

At least 2 auditors.
Appointed by Central Government.
Remuneration fixed by Central Government.
Term ≤ 1 year.
Reappointment permitted.

Section 51 — Special audit

Central Government can appoint:

Comptroller and Auditor-General (CAG)

to examine/report on RBI accounts.

Section 52 — Powers & duties of auditors

Auditors can:

Examine balance sheet.
Examine accounts/vouchers.
Access books/documents.
Seek explanations.
Examine Directors/officers.
Report to Central Government.

Simple

S.50 = Who audits
S.51 = Special audit by CAG
S.52 = What auditors do

Section 53 — Returns

RBI can require specified returns/information under the Act.

Simple

Regulatory reporting power.

Section 54 — Rural Credit & Development

RBI can undertake/promote activities relating to:

Rural credit
Agricultural finance
Development.

Exam

Broad developmental function.

Section 54A — Delegation of powers

RBI can delegate specified powers/functions to:

Officers
Committees
Other authorised persons, as permitted.

Easy

Central authority → delegated execution.

Section 54AA — Deputation of RBI employees

RBI can depute employees to specified institutions.

Important statutory protection:

Employee cannot be deputed on terms less favourable than immediately before deputation.

An institution is treated as substantially owned by RBI if RBI has at least 40% share capital.

Sections 55 & 56

Repealed.

Historically dealt with:

Reports by RBI
Declaration regarding ownership of registered shares.

Section 57 — Liquidation of RBI

🔥 Important constitutional point.

RBI cannot be liquidated under ordinary Companies Act process.

It can be placed in liquidation only:

By order of Central Government and in manner directed by it.

Memory

RBI liquidation = Central Government order.

Section 57A — IFSC

RBI’s powers under this Act:

Do not extend to an International Financial Services Centre in specified respects.
Relevant regulatory powers for permitted financial products/services/institutions are exercised by IFSCA.

Exam Hook

IFSC → IFSCA, not ordinary RBI jurisdiction.

Section 58 — Power of Central Board to make regulations

Central Board can make regulations:

Consistent with RBI Act.
With required Government sanction.
Through Gazette notification.

Regulations can cover:

Board procedure
Local Boards
Delegation
Committees
Staff/superannuation funds
Contracts
Accounts
Director remuneration
Scheduled bank relations
Clearing houses
Electronic fund transfers
MPC-related matters.

Very important distinction

Act → Parliament

Rules → Central Government

Regulations → RBI Central Board

Section 58A — Good-faith protection

No suit/prosecution/legal proceeding against:

Central Government
RBI
Other person

for things done/intended in good faith under Act/orders/regulations/directions.