Cash reserves of scheduled banks to be kept with the Bank .

42 . [(1) Every bank included in the Second Schedule shall maintain with the Bank an average daily balance the amount of which shall not be less than [such per cent of the total of the demand and time liabilities in India of such bank as shown in the return referred to in sub-section (2), as the Bank may from time to time, having regard to the needs of securing the monetary stability in the country, notify in the Gazette of India].

[***]

Explanation.—For the purposes of this section,—

(a) "average daily balance" shall mean the average of the balances held at the close of business of each day of a [fortnight];

[(b) "fortnight" shall mean the period from Saturday to the second following Friday, both days inclusive;]

[(c) "liabilities" shall not include—

(i) the paid-up capital or the reserves or any credit balance in the profit and loss account of the bank,

(ii) the amount of any loan taken from the Bank [***] [or from the Exim Bank] [or from the Reconstruction Bank] [or from the National Housing Bank] or from the [National Bank] [or from the Small Industries Bank] [***];

(iii) in the case of a State Co-operative Bank, also any loan taken by such bank from a State Government [or from the National Co-operative Development Corporation established under the National Co-operative Development Corporation Act, 1962 (26 of 1962)] and any deposit of money with such bank representing the reserve fund or any part thereof [***] maintained with it by any co-operative society within its area of operation;]

[(iv) in the case of a State co-operative bank, which has granted an advance against any balance maintained with it, such balance to the extent of the amount outstanding in respect of such advance;]

[(v) in the case of a Regional Rural Bank, also any loan taken by such bank from its Sponsor Bank;]

[(d) the aggregate of the "liabilities" of a scheduled bank which is not a State co-operative bank, to,—

(i) the State Bank;

(ii) a subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);

(iii) a corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970);

[(iiia) a corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);]

(iv) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(v) a co-operative bank; or

(vi) any other financial institution notified by the Central Government in this behalf, shall be reduced by the aggregate of the liabilities of all such banks and institutions to the scheduled bank;

(e) the aggregate of the "liabilities" of a scheduled bank which is a State co-operative bank, to,—

(i) the State Bank;

(ii) a subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);

(iii) a corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970);

[(iiia) a corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);]

(iv) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); or

(v) any other financial institution notified by the Central Government in this behalf, shall be reduced by the aggregate of the liabilities of all such banks and institutions to the State co-operative bank.]

(1A) Notwithstanding anything contained in sub-section (1), the Bank may, by notification in the Gazette of India, direct that every scheduled bank shall, with effect from such date as may be specified in the notification, maintain with the Bank, in addition to the balance prescribed by or under sub-section (1), an additional average daily balance the amount of which shall not be less than the [rate specified in the notification, such additional balance being calculated with reference to the excess of the total of the demand and time liabilities of the bank as shown in the return referred to in sub-section (2) over the total of its demand and time liabilities] at the close of business on the date specified in the notification as shown by such return so however, that the additional balance shall, in no case, be more than such excess :

[Provided that the Bank may, by a separate notification in the Gazette of India, specify different dates in respect of a bank subsequently included in the Second Schedule.]

(1AA) [***]

(1B) [***]]

[(1C) The Bank may, for the purposes of this section, specify from time to time with reference to any transaction or class of transactions that such transaction or transactions shall be regarded as liability in India of a scheduled bank, and if any question arises as to whether any transaction or class of transactions shall be regarded, for the purposes of this section, as liability in India of a scheduled bank, the decision of the Bank thereon shall be final.]

[(2) Every scheduled bank shall send to the bank a return signed by two responsible officers of such bank showing—

(a) the amount of its demand and time liabilities and the amount of its borrowings from banks in India, [classifying them into demand and time liabilities,]

(aa) [***]

(b) the total amount of legal tender notes and coins held by it in India,

(c) the balance held by it at the Bank in India,

(d) the balances held by it at other banks in current account and the money at call and short notice in India,

(e) the investments (at book value) in Central and State Government securities including treasury bills and treasury deposit receipts,

(f) the amount of advances in India,

(g) the inland bills purchased and discounted in India [and foreign bills purchased and discounted],

[at the close of business on each alternate Friday, and every such return shall be sent not later than seven days after the date to which it relates] :

[Provided that the Bank may, by notification in the Gazette of India, delete or modify or add to any of the particulars specified in the foregoing clauses :

Provided further that] where [such alternate] Friday is a public holiday under the Negotiable Instruments Act, 1881 (26 of 1881), for one or more offices of a scheduled bank, the return shall give the preceding working day's figures in respect of such office or offices, but shall nevertheless be deemed to relate to that Friday :

[Provided also that where the Bank is satisfied that the furnishing of a fortnightly return under this sub-section is impracticable in the case of any scheduled bank by reason of the geographical position of the bank and its branches, the Bank may allow such bank—

(i) to furnish a provisional return for the fortnight within the period aforesaid to be followed by a final return not later than twenty days after the date to which it relates, or

(ii) to furnish in lieu of a fortnightly return a monthly return to be sent not later than twenty days after the end of the month to which it relates giving the details specified in this sub-section in respect of such bank at the close of business for the month.]]

[(2A) Where the last Friday of a month is not an alternate Friday for the purpose of sub-section (2), every scheduled bank shall send to the Bank, a special return giving the details specified in sub-section (2) as at the close of business on such last Friday or where such last Friday is a public holiday under the Negotiable Instruments Act, 1881 (26 of 1881) as at the close of business on the preceding working day and such return shall be sent not later than seven days after the date to which it relates.]

[(3) If the average daily balance held at the Bank by a scheduled bank during any [fortnight] is below the minimum prescribed by or under sub-section (1) or sub-section (1A), such scheduled bank shall be liable to pay to the Bank in respect of that [fortnight] penal interest at a rate of three per cent above the bank rate on the amount by which such balance with the Bank falls short of the prescribed minimum, and if during the next succeeding [fortnight], such average daily balance is still below the prescribed minimum, the rates of penal interest shall be increased to a rate of five per cent above the bank rate in respect of that [fortnight] and each subsequent [fortnight] during which the default continues on the amount by which such balance at the Bank falls short of the prescribed minimum.]

(3A) When under the provisions of sub-section (3) penal interest at the increased rate of five per cent above the bank rate has become payable by a scheduled bank, [if thereafter the average daily balance held at the Bank during the next succeeding [fortnight] is still below the prescribed minimum,—

(a) every director, manager or secretary of the scheduled bank, who is knowingly and wilfully a party to the default, shall be punishable with fine which may extend to five hundred rupees and with a further fine which may extend to five hundred rupees for each subsequent [fortnight] during which the default continues, and

(b) the Bank may prohibit the scheduled bank from receiving after the said [fortnight] any fresh deposit,]

and, if default is made by the scheduled bank in complying with the prohibition referred to in clause (b), every director and officer of the scheduled bank who is knowingly and wilfully a party to such default or who through negligence or otherwise contributes to such default shall in respect of each such default be punishable with fine which may extend to five hundred rupees and with a further fine which may extend to five hundred rupees for each day after the first day on which a deposit received in contravention of such prohibition is retained by the sche-duled bank.

Explanation.—In this sub-section "officer" includes a [***] manager, secretary, branch manager, and branch secretary.

(4) Any scheduled bank failing to comply with the provisions of sub-section (2) [shall be liable to pay to the Bank] a penalty of one hundred rupees for each day during which the failure continues.

[(5) (a) The penalties imposed by sub-sections (3) and (4) shall be payable within a period of fourteen days from the date on which a notice issued by the Bank demanding the payment of the same is served on the scheduled bank, and in the event of failure of the scheduled bank to pay the same within such period, may be levied by a direction of the principal civil court having jurisdiction in the area where an office of the defaulting bank is situated, such direction to be made only upon an application made in this behalf to the court by the Bank;

(b) when the court makes a direction under clause (a), it shall issue a certificate specifying the sum payable by the scheduled bank and every such certificate shall be enforceable in the same manner as if it were a decree made by the court in a suit;

(c) notwithstanding anything contained in this section, if the Bank is satisfied that the defaulting bank had sufficient cause for its failure to comply with the provisions of sub-section (1), (1A) or (2), it may not demand the payment of the penal interest or the penalty, as the case may be.]

(6) The Bank shall, save as hereinafter provided, by notification in the Gazette of India,—

(a) direct the inclusion in the Second Schedule of any bank not already so included which carries on the business of banking [in India] and which—

(i) has a paid-up capital and reserves of an aggregate value of not less than five lakhs of rupees,

(ii) satisfies the Bank that its affairs are not being conducted in a manner detrimental to the interests of its depositors, and

(iii) is a [State co-operative bank or a] company as defined in [section 3 of the Companies Act, 1956 (1 of 1956), or an institution notified by the Central Government in this behalf] or a corporation or a company incorporated by or under any law in force in any place [outside India];

(b) direct the exclusion from that Schedule of any scheduled bank,—

(i) the aggregate value of whose paid-up capital and reserves becomes at any time less than five lakhs of rupees, or

(ii) which is, in the opinion of the Bank after making an inspection under section 35 of the Banking [Regulation] Act, 1949 (10 of 1949), conducting its affairs to the detriment of the interests of its depositors, or

(iii) which goes into liquidation or otherwise ceases to carry on banking business :

Provided that the Bank may, on application of the scheduled bank concerned and subject to such conditions, if any, as it may impose, defer the making of a direction under sub-clause (i) or sub-clause (ii) of clause (b) for such period as the Bank considers reasonable to give the scheduled bank an opportunity of increasing the aggregate value of its paid-up capital and reserves to not less than five lakhs of rupees or, as the case may be, of removing the defects in the conduct of its affairs;

(c) alter the description in that Schedule whenever any scheduled bank changes its name.

Explanation.—In this sub-section the expression "value" means the real or exchangeable value and not the nominal value which may be shown in the books of the bank concerned; and if any dispute arises in computing the aggregate value of the paid-up capital and reserves of a bank, a determination thereof by the Bank shall be final for the purposes of this sub-section.

[(6A) In considering whether a State co-operative bank or a regional rural bank should be included in or excluded from the Second Schedule, it shall be competent for the Bank to act on a certificate from the National Bank on the question whether or not a State co-operative bank or a regional rural bank, as the case may be, satisfies the requirements as to paid-up capital and reserves or whether its affairs are not being conducted in a manner detrimental to the interests of its depositors.]

[(7) The Bank may, for such period and subject to such conditions as may be specified, grant to any scheduled bank such exemptions from the provisions of this section as it thinks fit with reference to all or any of its offices or with reference to the whole or any part of its assets and liabilities.]