RBI Act 1934 – PART II — SECTION 17 TO SECTION 19

BUSINESS WHICH RBI MAY / MAY NOT TRANSACT

This is a high-value section for the exam. Do not study Section 17 as a random list. The logic is:

Section 17 = what RBI is legally authorised to do
Section 18 = exceptional/special credit action beyond Section 17 limits
Section 18A = validity protection for RBI loans
Section 19 = what RBI is prohibited from doing

The following is decoded from the RBI Act, 1934, as amended by the Finance Act, 2022.

17. Business which the Bank may transact.

Opening provision

“The Bank shall be authorized to carry on and transact the several kinds of business hereinafter specified…”

Simplified

RBI can undertake only the categories of business specifically authorised by Section 17, along with activities incidental/consequential to its statutory functions.

17(1)

Provision

RBI may:

accept money on deposit without interest; and
collect money for:
- Central Government;
- State Governments;
- local authorities;
- banks; and
- any other persons.

Simplified

RBI can act as a custodian/collector of funds, particularly for Government and banking-related purposes.

Key point

17(1) = interest-free deposits + collection of money.

17(1A) — Standing Deposit Facility

RBI may accept money:

as deposits;
repayable with interest;
from banks or any other person;
under the Standing Deposit Facility Scheme;
as approved by the Central Board;
for the purpose of liquidity management.

Simplified

This is the statutory basis for RBI accepting funds under SDF.

Important distinction

17(1):

Deposit without interest

17(1A):

Deposit with interest under SDF

17(2) — Purchase, sale and rediscount of bills/promissory notes

This is a major provision.

17(2)(a)

RBI may purchase, sell and rediscount:

bills of exchange;
promissory notes;

provided they:

are drawn on and payable in India;
arise from bona fide commercial or trade transactions;
bear two or more good signatures;
one signature is that of:
- a scheduled bank; or
- State co-operative bank; or
- financial institution predominantly engaged in accepting/discounting bills and promissory notes and approved by RBI;
satisfy the maturity requirement.

Maturity:

17(2)(a)(i)

If the transaction relates to export of goods from India:

→ maturity within 180 days.

17(2)(a)(ii)

For other transactions:

→ maturity within 90 days.

Days of grace are excluded.

Simplified

RBI can rediscount genuine commercial bills, but there are strict conditions:

India + genuine trade + 2 good signatures + eligible institution + maturity limit.

17(2)(b)

RBI may purchase, sell and rediscount bills of exchange/promissory notes:

drawn and payable in India;
bearing two or more good signatures;
one signature being that of:
- scheduled bank;
- State co-operative bank; or
- RBI-approved financial institution predominantly engaged in bill acceptance/discounting;
issued/drawn for:
- financing agricultural operations; or
- marketing of crops.

Maturity

→ Within 15 months from date of purchase/rediscount.

Days of grace are excluded.

Simplified

RBI gets a longer maturity window for bills connected with:

Agriculture + crop marketing.

Memory

Normal commercial/export: 90/180 days
Agricultural/crop marketing: 15 months

17(2)(bb)

RBI may purchase, sell and rediscount bills of exchange and promissory notes:

drawn and payable in India;
bearing two or more good signatures;
one signature being that of a State co-operative bank or State Financial Corporation;
relating to financing the production or marketing activities of cottage and small-scale industries approved by RBI;
maturity: within 12 months.

Additional condition

Payment of:

principal; and
interest

must be fully guaranteed by the State Government.

Simplified

Special bill-financing facility for:

Cottage + small-scale industries

with:

12-month maturity + State Government guarantee.

17(2)(c)

[OMITTED]

The original provision relating to certain bills has been omitted.

Exam point

Do not treat an omitted sub-clause as an operative RBI power.

17(3) — Foreign exchange and foreign bills

17(3)(a)

RBI may purchase from and sell to:

scheduled banks

foreign exchange.

Simplified

RBI can transact in foreign exchange with scheduled banks.

17(3)(b)

RBI may purchase, sell and rediscount:

bills of exchange, including Treasury Bills;
drawn in/on places outside India;
in countries that are members of the IMF.

Maturity

17(3)(b)(i)

Export-related bona fide transaction:

→ 180 days

17(3)(b)(ii)

Other transaction:

→ 90 days

Proviso

Such transactions in India can be made only with:

scheduled banks; or
State co-operative banks.

Simplified

17(3) = foreign exchange + foreign bills.

17(3A)

RBI may make loans and advances to:

scheduled banks; or
State co-operative banks;

against their promissory notes.

Repayment

on demand; OR
fixed period not exceeding 180 days.

But there is a crucial proviso.

The borrowing bank must furnish a written declaration that:

17(3A)(i)

It holds bills of exchange arising from export transactions from India of value not less than the RBI loan/advance.

The bills must:

17(3A)(i)(a)

Be drawn in India and on a place in:

an IMF-member country; or
another country notified by RBI.

17(3A)(i)(b)

Mature within 180 days from the date of the RBI loan/advance.

And:

As long as RBI’s loan remains outstanding, the borrowing bank must continue to hold such bills of at least equivalent value.

OR

17(3A)(ii)

The borrowing bank has granted:

pre-shipment loan/advance;
to an exporter or another person in India;

for enabling export of goods from India.

The amount outstanding under that loan must not be less than the amount outstanding under the RBI loan.

Simplified

RBI gives a bank an export-related loan against its promissory note.

But the bank must show:

“I have corresponding export bills/pre-shipment loans of at least equal value.”

17(3B)

RBI may make loans/advances to:

scheduled banks;
State co-operative banks;

against their promissory notes.

Repayment

on demand; OR
within 180 days.

Proviso

Borrowing bank must give a written declaration that it has made loans/advances for:

bona fide commercial/trade transactions;
financing agricultural operations;
marketing of crops; or
other agricultural purposes specified in the declaration.

The declaration must also contain other particulars RBI requires.

Simplified

17(3B) = 180-day RBI lending against bank promissory notes, backed by declaration regarding eligible underlying lending.

Difference from 17(3A)

Provision	Underlying purpose
17(3A)	Export financing
17(3B)	Commercial/trade/agricultural financing

17(4)

RBI may make loans/advances to:

local authorities;
scheduled banks;
State co-operative banks;
State Financial Corporations;

repayable:

on demand; OR
within 90 days.

Security can be:

17(4)(a)

Stocks, funds and securities — excluding immovable property — in which a trustee is authorised to invest trust money.

17(4)(b)

Gold/silver or documents of title to gold/silver.

17(4)(c)

Bills of exchange/promissory notes:

eligible for RBI purchase/rediscount; OR
fully guaranteed for principal and interest by a State Government.

17(4)(d)

Promissory notes of:

scheduled bank; or
State co-operative bank;

supported by documents of title to goods transferred/assigned/pledged to the bank as security for loans/advances made for:

bona fide commercial/trade transactions;
financing agricultural operations;
marketing crops.

Export proviso

If the bills/promissory notes arise from export of goods from India:

→ loan/advance repayable on demand or within 180 days.

17(4A) — State Financial Corporations

RBI may lend to State Financial Corporations.

Repayment

Within a fixed period not exceeding 18 months.

Security

Either:

Central Government securities; or
State Government securities; or
bonds/debentures issued by the SFC;

provided such bonds/debentures:

are guaranteed by the concerned State Government; and
mature within 18 months.

Proviso 1

SFC must obtain previous approval of the State Government for borrowing.

Proviso 2

Total RBI loans/advances under this clause:

→ cannot exceed twice the paid-up share capital of the SFC.

Simplified

SFC → RBI funding up to 2× paid-up share capital + max 18 months + Government securities/guaranteed bonds.

17(4AA)

RBI may make annual contributions to:

National Rural Credit (Long Term Operations) Fund; and
National Rural Credit (Stabilisation) Fund;

established under Sections 42 and 43 of the NABARD Act, 1981.

Simplified

RBI can contribute annually to specified NABARD rural-credit funds.

17(4B) — Industrial Finance Corporation

RBI may lend to the Industrial Finance Corporation.

17(4B)(a)

Loans repayable:

on demand; OR
within 90 days;

against:

Central Government securities; or
State Government securities.

17(4B)(b)

Loans repayable within 18 months against:

Central Government securities of any maturity; OR
bonds/debentures issued by IFC;
guaranteed by Central Government;
maturing within 18 months.

Simplified

IFC → 90-day or 18-month RBI financing depending on security.

17(4BB) — Other notified financial institutions

RBI may lend to a financial institution notified by Central Government.

17(4BB)(a)

Repayable:

on demand; OR
within 90 days;

against Central/State Government securities.

17(4BB)(b)

Repayable within 18 months against:

Central/State Government securities of any maturity; OR
bonds/debentures of the financial institution;
guaranteed by Central/State Government;
maturing within 18 months.

Proviso

Loans under 17(4BB)(b):

→ cannot exceed 60% of paid-up share capital of that financial institution.

Memory

Notified FI → 60% ceiling for the 18-month category.

17(4BBB) — Unit Trust

RBI may lend to the Unit Trust.

17(4BBB)(i)

Repayable:

on demand; OR
within 90 days;

against eligible stocks, funds and securities excluding immovable property.

17(4BBB)(ii)

Repayable:

on demand; OR
within 18 months;

against bonds of Unit Trust:

issued with Central Government approval; and
guaranteed by Central Government.

17(4BBB)(iii)

RBI may provide loans for schemes other than the First Unit Scheme under the UTI Act, 1963:

on terms and conditions specified by RBI;
against security of other property of Unit Trust specified by RBI.

Simplified

Unit Trust → short-term + 18-month + other approved schemes financing.

17(4C) — Warehousing Corporations

RBI may lend to Warehousing Corporations established under the relevant 1956 Act.

17(4C)(a)

Loans repayable:

on demand; OR
within 90 days;

against:

Central Government securities; or
State Government securities.

17(4C)(b)

Loans repayable within 18 months against:

Central/State Government securities of any maturity; OR
bonds/debentures issued by the Corporation;
guaranteed by Central/State Government;
maturing within 18 months.

Proviso

Aggregate limit under 17(4C)(b):

Central Warehousing Corporation → ₹3 crore
State Warehousing Corporation → ₹50 lakh

Exam Trap

Do not confuse:

17(4C) = Warehousing Corporation

with

17(4A) = State Financial Corporation.

17(4D)

RBI may:

make loans and advances to the Deposit Insurance Corporation; and
generally assist it.

Terms are determined by the Central Board.

Simplified

DIC → RBI lending + assistance on Central Board terms.

17(4DD)

RBI may:

make loans and advances to National Housing Bank;
generally assist NHB.

Terms are determined by the Central Board.

Simplified

NHB → RBI lending + assistance.

17(4E) — NABARD

RBI may make loans and advances to National Bank for Agriculture and Rural Development (NABARD).

Repayment

on demand; OR
within 18 months.

Security

Either:

17(4E)(i)

Stocks, funds and securities, excluding immovable property, in which trustees are authorised to invest trust money.

OR

17(4E)(ii)

Such other terms and conditions as RBI may specify.

17(4F)

RBI may contribute to the initial capital of Unit Trust.

Simplified

RBI → initial capital contribution to UTI.

17(4G)

RBI may use the:

National Industrial Credit (Long Term Operations) Fund

to:

make loans/advances to:
- Exim Bank;
- Reconstruction Bank;
- Small Industries Bank;
- NaBFID;
- other development financial institutions;
purchase their bonds/debentures.

Simplified

This is a long-term industrial/development finance facility funded through the designated Fund.

17(4GG)

RBI may use the:

National Housing Credit (Long Term Operations) Fund

to:

make loans/advances to NHB; and
purchase NHB bonds/debentures.

Simplified

National Housing Credit Fund → NHB financing.

17(4H) — Small Industries Bank

RBI may lend to the Small Industries Development Bank of India (SIDBI).

17(4H)(a)

Repayable:

on demand; OR
within 90 days;

against eligible stocks/funds/securities excluding immovable property.

17(4H)(b)

Against bills of exchange/promissory notes:

arising from bona fide commercial/trade transactions;
bearing at least two good signatures;
maturing within 5 years.

Simplified

SIDBI → 90-day secured lending or up to 5-year eligible commercial bills.

17(4-I)

RBI may make loans and advances to:

scheduled banks;
Exim Bank;
Reconstruction Bank;
Small Industries Bank;
Industrial Finance Corporation;
NaBFID;
other development financial institutions;
other financial institutions approved by Central Government on RBI recommendation.

Purpose

To enable these institutions to purchase foreign exchange from RBI for:

financing import of capital goods; or
other purposes approved by Central Government.

Conditions

repayment terms/security/other terms are approved by Central Board;
borrowing institution gives required declaration.

Simplified

This is essentially:

RBI provides finance → institution buys foreign exchange from RBI → funds capital-goods imports/approved purposes.

17(4J) — Exim Bank

RBI may lend to Exim Bank.

17(4J)(a)

Repayable:

on demand; OR
within 90 days;

against:

stocks;
funds;
securities;

excluding immovable property, in which trustees may invest trust money.

17(4J)(b)

Against bills/promissory notes:

arising from bona fide commercial/trade transactions;
bearing two or more good signatures;
maturity within 5 years.

17(4K) — Reconstruction Bank

RBI may lend to Reconstruction Bank.

17(4K)(a)

Repayable:

on demand; OR
within 90 days;

against eligible stocks/funds/securities.

17(4K)(b)

Against eligible bills/promissory notes:

bona fide commercial/trade transactions;
two or more good signatures;
maturity within 5 years.

17(4L) — NaBFID / Other Development Financial Institutions

RBI may lend to:

National Bank for Financing Infrastructure and Development; or
other development financial institutions.

17(4L)(a)

Repayable:

on demand; OR
within 90 days;

against eligible stocks/funds/securities.

17(4L)(b)

Against bills/promissory notes:

bona fide commercial/trade transactions;
two or more good signatures;
maturity within 5 years.

17(5) — Advances to Government

RBI may make advances to:

Central Government; and
State Governments.

Repayment

Each advance must be repaid:

→ not later than 3 months from the date of advance.

Simplified

Government temporary advance → maximum 3 months.

Exam Trap

This is not the same thing as saying RBI can provide unlimited long-term lending to Government.

17(6)

RBI may:

issue demand drafts;
make telegraphic transfers;
make other remittances payable at its own offices/agencies;
purchase telegraphic transfers;
make, issue and circulate bank post bills.

Simplified

RBI can undertake specified remittance/transfer services.

17(6A) — Derivatives

RBI may:

deal in derivatives; and
with Central Board approval, deal in other financial instruments.

Explanation — “Derivative”

Derivative means an instrument:

settled at a future date;
whose value derives from changes in one or more underlying variables.

These include:

17(6A)(a)

Interest rate.

17(6A)(b)

Price of:

Central Government securities;
State Government securities;
specified local-authority securities.

17(6A)(c)

Price of foreign securities.

17(6A)(d)

Foreign exchange rate.

17(6A)(e)

Index of rates/prices.

17(6A)(f)

Credit rating/credit index.

17(6A)(g)

Price of:

gold/silver coins;
gold/silver bullion.

17(6A)(h)

Any other similar variable.

Simplified

Derivative = future-settled instrument whose value depends on an underlying.

17(7)

[REPEALED]

The clause has been repealed.

Exam point

17(7) = no current operative power.

17(8) — Government securities

RBI may purchase and sell:

Central Government securities;
State Government securities;
securities of specified local authorities.

Maturity

Any maturity.

Authority

For local-authority securities:

→ Central Government specifies them on recommendation of Central Board.

Proviso

Securities fully guaranteed as to:

principal; and
interest

by the relevant Government/authority are treated as securities of that Government/authority.

Simplified

17(8) = RBI’s core Government securities purchase/sale power.

17(8A) — Investment in specified institutions

RBI may purchase/sell shares in or capital of:

NABARD;
Deposit Insurance Corporation;
State Bank;
any other bank/financial institution notified by Central Government.

Simplified

RBI can hold capital/share interests in specified statutory financial institutions.

17(8AA)

RBI may:

promote;
establish;
support;
aid in promotion/establishment/support

of financial institutions:

as subsidiaries; or
otherwise.

Simplified

RBI can support establishment/development of financial institutions where authorised.

17(8B)

RBI may keep deposits with State Bank for specific purposes approved by Central Government.

Simplified

RBI → deposits with SBI → only for CG-approved specific purposes.

17(9)

RBI may have custody of:

money;
securities;
other articles of value;

and collect:

principal;
interest;
dividends;

arising from securities.

Simplified

RBI can act as a custodian and collection agent for valuable assets/securities.

17(10)

RBI may sell and realise property:

movable; or
immovable;

which comes into RBI’s possession in satisfaction or part-satisfaction of its claims.

Simplified

If RBI gets property against a claim/debt:

→ RBI can realise/sell it.

17(11) — Agency business

RBI may act as agent for:

Central Government;
State Government;
local authority;
Industrial Finance Corporation;
other specified statutory bodies/corporations;
certain foreign governments/authorities/persons approved by Central Government.

Permitted agency activities include:

17(11)(a)

Purchase and sale of:

gold;
silver;
foreign exchange.

17(11)(b)

Purchase, sale, transfer and custody of:

bills of exchange;
securities;
company shares.

17(11)(c)

Collection of:

principal;
interest;
dividends

on securities/shares.

17(11)(d)

Remittance of such proceeds by bills of exchange payable:

in India; or
elsewhere.

17(11)(e)

Management of public debt.

17(11)(f)

Issue and management of bonds/debentures.

Simplified

17(11) = RBI can act as financial agent.

17(11A)

RBI may act as agent for the Central Government in administering schemes that subsidise:

interest rates; or
other charges;

on loans/advances or credit facilities provided by:

banks; or
financial institutions;

for financing/facilitating exports from India.

RBI can also make payments as Central Government’s agent.

Simplified

Export finance subsidy schemes → RBI can act as Government’s agent.

17(12)

RBI may purchase and sell:

gold coins;
silver coins;
gold bullion;
silver bullion;
foreign exchange.

RBI may also open a gold account with:

principal currency authority of a foreign country;
Bank for International Settlements;
international/regional bank or financial institution formed by such authorities/governments.

Simplified

17(12) = gold/silver + forex + international gold accounts.

17(12A) — Foreign securities

RBI may purchase/sell securities issued by:

Government of a country outside India; or
institution/body corporate established outside India;

provided they are payable in:

foreign currency; or
international/composite currency unit.

Purchase condition

For securities purchased by RBI:

→ maturity must be within 10 years from date of purchase.

Proviso

If securities are issued by an institution/body corporate:

→ repayment of principal and payment of interest must be guaranteed by the Government of that country.

Simplified

Foreign sovereign/institution securities → RBI can deal, but RBI purchase maturity ≤10 years and institutional securities need sovereign guarantee.

17(12AA) — Securities lending/borrowing

RBI may lend or borrow:

Central Government securities;
State Government securities;
specified local-authority securities;
foreign securities.

Simplified

RBI can undertake securities lending and borrowing in specified securities.

17(12AB) — Repo / Reverse Repo

RBI may deal in:

repo; and
reverse repo.

Proviso

Lending/borrowing funds through repo or reverse repo:

→ not subject to limitations contained in Section 17.

This is extremely important.

17(12AB) Explanation

17(12AB)(a) — Repo

Repo = borrowing funds by:

selling securities;
agreeing to repurchase them later;
at an agreed future date;
at agreed price including interest.

Simplified

Repo = RBI/participant raises funds against sale of securities with buy-back agreement.

17(12AB)(b) — Reverse Repo

Reverse repo = lending funds by:

purchasing securities;
agreeing to resell them later;
at an agreed future date;
at an agreed price including interest.

Simplified

Reverse repo = lending funds against purchase of securities with resale agreement.

17(12B) — Foreign-currency loans

RBI may make loans/advances in foreign currencies to:

scheduled banks;
Exim Bank;
Reconstruction Bank;
Small Industries Bank;
Industrial Finance Corporation;
NaBFID;
other development financial institutions;
State Financial Corporations;
other financial institutions approved by Central Government on RBI recommendation.

Security

Against:

promissory notes of the borrowing institution.

Proviso — declaration

Borrowing institution must declare in writing:

17(12B)(a)

It has made foreign-currency loans/advances for:

international trade;
import of capital goods; or
other purposes approved by Central Government.

17(12B)(b)

Outstanding foreign-currency loans/advances made by the borrowing institution:

→ must not be less than its outstanding borrowing from RBI.

Simplified

RBI foreign-currency funding → institution must have corresponding eligible foreign-currency lending outstanding.

17(13) — International banking relationships

RBI may:

open an account with an office outside India of any bank;
enter into agency agreements with foreign banks;
act as agent/correspondent of:
- foreign-incorporated banks;
- principal currency authorities of foreign countries;
- international/regional banks/financial institutions;
invest RBI funds in shares/securities of such institutions;
invest in other foreign institutions approved by Central Board.

Simplified

17(13) = RBI’s international banking/correspondent relationships.

17(13A) — International clearing arrangements

RBI may participate in arrangements for:

clearing and settlement of amounts due to/from persons/authorities;
arising from India’s external trade;
remittances to/from foreign countries/groups.

RBI may:

advance or receive amounts in any currency;
with Central Government approval, become member of:
- international/regional clearing unions of central banks;
- monetary authorities;
- other similar authorities;
become member of bodies/associations formed by central banks or similar authorities.

Simplified

17(13A) = international payment, clearing and settlement cooperation.

17(14) — Short-term borrowing by RBI

RBI may borrow money:

for its business;
for a period not exceeding one month;
and give security for such borrowing.

First proviso — India

RBI cannot borrow under this clause from persons in India other than:

scheduled banks.

Second proviso — outside India

RBI cannot borrow from persons outside India other than:

a bank which is the principal currency authority of that country.

Further proviso

Total borrowing from persons in India:

→ cannot exceed RBI’s capital at any time.

Simplified

RBI’s own borrowing power = short-term only, max 1 month + restricted lenders + India borrowing ceiling = RBI capital.

17(15)

RBI may:

make and issue bank notes subject to the provisions of the RBI Act.

Simplified

This is the statutory business power corresponding to RBI’s banknote issuance function.

Important

The detailed rules on issuance are subsequently dealt with in Sections 22 onwards.

17(15A)

RBI may exercise:

powers;
functions;

and perform:

duties

entrusted to it:

under the RBI Act; or
under any other law in force.

Simplified

RBI can carry out all statutory functions assigned to it by law, not merely those listed in Section 17.

17(15B)

RBI may provide facilities for:

training in banking; and
promotion of research;

where RBI believes such facilities will facilitate:

exercise of RBI powers/functions; or
discharge of RBI duties.

Simplified

RBI can support:

banking training + research

when connected with its statutory functions.

17(16) — Incidental powers

RBI may generally do:

all matters and things incidental or consequential to the exercise of its powers or discharge of its duties under the Act.

Simplified

This is the residual/incidental power.

If something is genuinely necessary or consequential to RBI exercising a statutory power:

→ Section 17(16) provides statutory authority for it.

Memory

17(15A) = statutory functions

17(15B) = training/research

17(16) = incidental/consequential activities

18. Power of direct discount.

This is a special/emergency-type power.

Trigger condition

RBI must be of the opinion that a special occasion has arisen making it necessary or expedient to act under this section.

Purpose

To regulate credit in the interests of:

Indian trade;
commerce;
industry;
agriculture.

Effect

RBI may act notwithstanding limitations contained in Section 17.

18(1)

RBI may:

purchase;
sell; or
discount

any:

bill of exchange; or
promissory note;

even if that bill/promissory note is not eligible for purchase or discount under Section 17.

Simplified

Normally:

Section 17 determines what RBI can discount.

But during a special occasion:

Section 18 can override Section 17 eligibility limitations.

Exam Hook

S.18 = exceptional relaxation of S.17 limitations for credit regulation.

Section 18 — Important conceptual distinction

Do not make the stupid mistake of treating Section 18 as an ordinary RBI lending provision.

Section 17

Normal statutory business powers.

Section 18

Special occasion + credit regulation + trade/commerce/industry/agriculture + notwithstanding Section 17 limitations.

That distinction is exam-worthy.

18A. Validity of loan or advance not to be questioned.

This section protects the validity of RBI loans/advances.

18A(a)

Notwithstanding anything in any other law:

The validity of a loan/advance granted by RBI under the Act cannot be questioned merely because of non-compliance with requirements under:

another law;
resolution;
contract;
memorandum;
articles of association;
other instrument.

Proviso

This protection does not make valid a loan/advance obtained by a:

company; or
co-operative society

if that entity is not empowered by its memorandum to obtain loans/advances.

Simplified

A borrower cannot easily attack the validity of RBI’s loan merely by saying:

“Some requirement under another law/company document was not complied with.”

But:

If the company’s own memorandum does not authorise borrowing, Section 18A cannot rescue it.

18A(b)

This deals with money received by borrowing banks/persons from borrowers where the original funds came from RBI.

Where:

RBI has granted a loan/advance under Section 17(3A), 17(3B), or Section 18(3); and
the borrowing bank/person used those funds to make further loans/advances;

then amounts subsequently received in repayment/realisation of those underlying loans must be used for repayment of the amounts due to RBI.

18A(b)(i)

Amounts received by borrowing bank from:

bills of exchange covered by declaration under Section 17(3A); or
repayment/realisation of specified outstanding loans/advances;

must be used for repayment to RBI.

18A(b)(ii)

Amounts received by borrowing bank/person from repayment/realisation of loans/advances granted out of RBI funds under Section 18:

→ must similarly be used for repayment to RBI.

Trust requirement

Until repayment to RBI:

→ these amounts must be held in trust for RBI.

Simplified

Think of it as:

RBI → Bank → borrower

When borrower repays:

Borrower → Bank

that money cannot simply be diverted elsewhere.

It must ultimately be used:

Bank → RBI repayment.

19. Business which the Bank may not transact.

This section is the negative list.

Opening principle:

Except as otherwise provided in Sections 17, 18, 42 and 45, RBI shall not undertake the following businesses.

Memory

S.19 = RBI’s prohibitions, subject to statutory exceptions.

19(1) — No trade/business interest

RBI cannot:

engage in trade; or
have a direct interest in any:
- commercial;
- industrial; or
- other undertaking.

Exception

RBI may acquire such interest:

→ in satisfaction of its claims.

Proviso

Any such interest must be:

→ disposed of at the earliest possible moment.

Simplified

RBI cannot become a commercial/industrial business operator.

But if it gets an interest because a debtor settles a claim through that asset:

→ RBI may temporarily hold it.

Then:

→ dispose of it ASAP.

19(2) — No purchase of company shares

RBI cannot:

purchase shares of any banking company or other company; or
grant loans against security of such shares.

Simplified

RBI cannot ordinarily:

buy company shares

lend against company shares.

Important

The prohibition is subject to the exceptions elsewhere in the Act — e.g. specified investments expressly authorised under Section 17.

19(3) — No lending against immovable property

RBI cannot:

advance money against mortgage of immovable property;
advance money against documents of title to immovable property;
become owner of immovable property.

Exception

RBI may own immovable property where necessary for:

its own business premises; and
residences for its officers and servants.

Simplified

RBI cannot function as a normal property-backed lender.

But it can own property needed for:

RBI offices + staff residences.

19(4) — No loans/advances

RBI cannot generally:

make loans or advances.

But this is NOT an absolute prohibition.

It expressly begins with:

“Save as otherwise provided in Sections 17, 18, 42 and 45…”

Therefore:

General rule

No loans/advances.

Exceptions

Loans/advances specifically authorised elsewhere, especially:

Section 17;
Section 18;
Section 42;
Section 45.

Exam Trap

If an MCQ says:

“RBI is prohibited from making loans and advances.”

The statement is too broad.

Correct:

RBI cannot make loans/advances except where specifically authorised by the Act.

19(5) — No bills payable otherwise than on demand

RBI cannot:

draw or accept bills payable otherwise than on demand.

Simplified

RBI cannot ordinarily issue/accept a bill that is payable after a future period rather than on demand.

19(6) — No interest on deposits/current accounts

RBI cannot:

allow interest on deposits or current accounts.

Important exception

This has to be read with specific statutory provisions such as Section 17(1A) dealing with the Standing Deposit Facility.

Therefore

Do not memorise:

“RBI can never pay interest on deposits.”

That is too crude.

The statutory scheme contains specific authorised exceptions.

SECTION 17–19 — MASTER EXAM MAP

Section 17 — RBI CAN DO

Provision	Core power
17(1)	Interest-free deposits/collection
17(1A)	SDF deposits with interest
17(2)	Bills/promissory notes
17(2)(a)	Commercial/trade bills — 90/180 days
17(2)(b)	Agriculture/crop bills — 15 months
17(2)(bb)	Cottage/small-scale industry bills — 12 months
17(3)	Forex + foreign bills
17(3A)	Export-linked bank lending — 180 days
17(3B)	Commercial/agricultural bank lending — 180 days
17(4)	Short-term secured lending — 90 days
17(4A)	SFC — up to 18 months; 2× paid-up capital
17(4AA)	NABARD rural-credit funds
17(4B)	IFC
17(4BB)	Notified financial institutions
17(4BBB)	Unit Trust
17(4C)	Warehousing Corporations
17(4D)	DIC
17(4DD)	NHB
17(4E)	NABARD
17(4F)	Initial capital of Unit Trust
17(4G)	Exim/Reconstruction/SIDBI/NaBFID etc. from NIC Fund
17(4GG)	NHB from Housing Credit Fund
17(4H)	SIDBI
17(4I)	Foreign exchange financing facility
17(4J)	Exim Bank
17(4K)	Reconstruction Bank
17(4L)	NaBFID/other DFI
17(5)	Government advances — max 3 months
17(6)	Drafts/remittances
17(6A)	Derivatives
17(8)	Government securities
17(8A)	Specified financial institutions’ shares/capital
17(8AA)	Promote/support financial institutions
17(8B)	Deposits with State Bank
17(9)	Custody/collection
17(10)	Realisation of property received against claims
17(11)	Agency business
17(11A)	Export subsidy schemes as Government agent
17(12)	Gold/silver/forex
17(12A)	Foreign securities
17(12AA)	Securities lending/borrowing
17(12AB)	Repo/reverse repo
17(12B)	Foreign-currency loans
17(13)	International banking relationships
17(13A)	International clearing
17(14)	RBI short-term borrowing — max 1 month
17(15)	Banknote issue
17(15A)	Statutory powers/functions
17(15B)	Banking training/research
17(16)	Incidental/consequential activities

Section 18 — SPECIAL POWER

Remember:

“Special occasion”

↓

Credit regulation

↓

Trade + Commerce + Industry + Agriculture

↓

RBI can override Section 17 limitations

↓

18(1): purchase/sell/discount otherwise ineligible bills/promissory notes

Section 18A — PROTECTION

Core idea

RBI loan validity cannot ordinarily be challenged merely for non-compliance with another law/document.

But:

No authority to borrow in the borrower’s own memorandum = Section 18A cannot cure it.

And repayment proceeds from RBI-funded onward lending are:

to be used for repayment to RBI + held in trust until then.

Section 19 — RBI CANNOT DO

Six prohibitions:

19(1) → No commercial/industrial trade interest
19(2) → No company/bank share purchase or lending against such shares
19(3) → No immovable-property lending/ownership except own premises/staff residences
19(4) → No loans/advances except statutory exceptions
19(5) → No bills payable otherwise than on demand
19(6) → No interest on deposits/current accounts, subject to specific statutory exceptions

🔥 The numbers you should actually memorise

For promotion-exam MCQs, these are the numbers worth drilling:

90 days
→ normal commercial bills / many short-term RBI loans

180 days
→ export bills / several export-related RBI facilities

15 months
→ agricultural/crop-marketing bills

12 months
→ cottage/small-scale industry bills

18 months
→ SFC / IFC / several development-finance facilities

5 years
→ certain bills for SIDBI / Exim / Reconstruction Bank / NaBFID-type facilities

10 years
→ RBI purchase of specified foreign securities under 17(12A)

3 months
→ advances to Government under 17(5)

1 month
→ RBI’s own borrowing under 17(14)

2× paid-up share capital
→ SFC lending ceiling under 17(4A)

60% paid-up share capital
→ notified financial institution under 17(4BB)(b)

₹3 crore / ₹50 lakh
→ Central/State Warehousing Corporation limits under 17(4C)(b)

Next: Sections 20–31 — Government banking + Government debt + banknote issuance + denomination + legal-tender provisions. This is where the Act moves from RBI’s permissible business into its core central-banking and currency-issuing functions.