Basic economics Series Part 9(Law of banking and economics in India)

In this article,basic laws related to banking and regulating financial services will  be discussed. It will be useful for both banking and civil service aspirants. Negotiable instrument act of 1881 defines cheque,Bill of exchange and promissory note. If any cheque bounces or if anyone fraudulently gives promissory note or bill or exchange, he will be prosecuted under this act. Banking Regulation Act of 1949 empowers RBI to regulate banks and Non Banking Financial Companies(NBFC). RBI does monetary function and gives license to new banks under this act.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act(SARFAESI) of 2002 is enacted to empower bank to sell the mortgage in case of Non payment of interest for long time. It hence reduces Non performing assets(NPA)  of the bank. If a loan given to customers becomes NPA (Read this article to know definition of NPA),Bank will give them notice to pay the loan amount within 60 days and if the loan is not paid after this duration, bank may sell the mortgage in auction under this act.

Debit Recovery Tribunals(DRT) was setup under the Recovery of Debts due to Banks and Financial Institutions act of 1993. They were setup to recover banks from Non performing assets. One of the biggest drawbacks of DRT is delay in processing each application.

Lok Adalat or People’s court: It was setup under legal service authorities act of 1987 to ease the dispute by compensation. When two parties agree on a certain ruling,case will be closed and if they contravene on the ruling,case will go back to court.   Lok adalt rulings cannot be questioned or quashed in upper court. Most of the time its ruling is not followed and lok adalt  cannot enforce rulings made by it as like a normal court. Note: Court can enforces its order through contempt of court act.

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