Regulation and Control
The primary objective of the act is to regulate and control the functioning of banks and financial institutions in India. It provides a framework for the establishment, operation, and management of banks, ensuring that they operate in a safe and sound manner.
Maintenance of Stability
The act aims to maintain stability in the banking sector. It establishes guidelines for banks’ capital requirements, reserve ratios, and lending practices, which help prevent excessive risk-taking and maintain financial stability.
Protection of Depositors
The act seeks to protect the interests of depositors by imposing regulations on banks. It ensures that banks maintain adequate liquidity, solvency, and reserves to honor their obligations towards depositors.
Licensing and Supervision
The act empowers the Reserve Bank of India (RBI) to issue licenses to banks and regulate their operations. The objective is to ensure that only well-managed and financially sound banks are allowed to conduct banking business in India.
Prudential Norms
The act lays down prudential norms and guidelines for banks, which include capital adequacy requirements, asset classification, provisioning norms, and exposure limits. These norms are designed to enhance the financial health and risk management practices of banks.
Promotion of Development
The act promotes the development of the banking sector in India. It includes provisions for priority sector lending, which directs a portion of bank credit towards sectors such as agriculture, small-scale industries, and weaker sections of society, fostering inclusive growth and economic development.
Control over Foreign Banks
The act provides a regulatory framework for foreign banks operating in India. It ensures that foreign banks meet certain criteria and comply with regulations to maintain the stability of the financial system.
