RESTRICTIONS ON OPENING OF NEW, AND TRANSFER OF EXISTING, PLACES OF BUSINESS

There’s a bank ABC which has four branches in different cities namely in Mumbai, Delhi, Chandigarh and Chennai. The ABC bank wants to open another branch in Kolkata. The bank can’t open its branch in a different city on its own. It needs to take permission from RBI to do so.  The provisions of Section 23 of the Banking Regulation Act, 1949 (the Act) provides certain Restrictions on the opening of new, and transfer of existing, places of business. Banking regulation Act 1949 provides rules regarding the framework within which banks are supposed to operate. The act imparts RBI with many powers that include the license to control and regulate the voting rights of the shareholders, supervising the appointment process of the management and abroad, giving license to banks, imposing penalties and so on.

Section 23 talks about the Restrictions on the opening of new, and transfer of existing, places of business. The provisions of Section 23 govern the opening of branches by banks of the Banking Regulation Act, 1949. About these provisions, banks can not without the prior approval of the RBI, open a new place of business in India or abroad or change the location of the existing place of business other than within the same city, town or village. Only via branches are foreign banks authorized to operate in India. A foreign bank wishing to open its maiden branch in India can request RBI to provide the bank, its major shareholders, financial position, etc. with relevant information. The branch licensing falls within the ambit of RBI. Sub-section (2) lays down the Condition for Branch Licensing. The Reserve Bank of India may approve the opening of a new branch or the relocation of an existing place of business, given that it is satisfied with the bank's financial position and history, the general nature of its management, the adequacy of its capital structure and the prospects for earnings; the public interest will be served by the opening or where necessary, by the opening. An inspection under section 35 of the Banking Regulation Act can enable the Reserve Bank to be satisfied. Access to sub-section (3) if all such conditions as it may think fit to impose either generally or with reference to any particular case The Reserve Bank may grant permission under sub-section (1). But under sub-section (4) Where, in the opinion of the Reserve Bank, a banking company has, at any time, failed to comply with any of the conditions imposed on it under this section, the Reserve Bank may, by order in writing and after affording reasonable opportunity to the banking company for showing cause against the action proposed to be taken against it, revoke any permission granted under this section.

But In line with this rationalization, and to allow banks greater operational freedom, the instructions regarding the merger, closure, shifting, part shifting, and opening of extension counters and reporting requirements have been reviewed. At present Banks may shift, merge or close all branches except rural branches and sole semi-urban branches at their discretion. Shifting, merger, or closure of any rural branch, as well as a sole semi-urban branch, would require the approval of the DCC/DLRC. Also, banks can ensure that either satellite offices/mobile vans or Business Correspondents continue to meet the centre's banking needs. The centre should not, therefore, be left unbanked. However, banks should also ensure that customers of the branch that is being shifted/merged/closed are told well in time before the branch is finally shifted/merged/closed to prevent inconvenience. In all such cases, if a branch is transferred from within the same or lesser population group, the license, if any of the merged/closed/moved branches has been given, may be surrendered to the DBS Regional Office concerned, except for the branches in Maharashtra and Goa which should be surrendered to DBR, CO, Mumbai. Thus without prior RBI approval, banks can transfer their metropolitan, urban and semi-urban branches outside the state and their rural branches outside the block.

Due to space/rent constraints, banks may require shifting certain activities/part change operations of a branch in any centre and may do so without seeking prior approval of the Reserve Bank of India. It should be noted, however, that banking operations, i.e. deposit or loan companies, cannot be sustained at both locations, and that the new part-shifting location will have to be within 1 km of the current location. Due to space/rent constraints, banks may require shifting certain activities/part change operations of a branch in any centre and may do so without seeking prior approval of the Reserve Bank of India. It should be noted, however, that banking operations, i.e. deposit or loan companies, cannot be sustained at both locations, and that the new part-shifting location will have to be within 1 km of the current location. To enable customer choice and operational freedom, the requirement of being the principal banker for the opening of EC is not required.

Earlier banks are required to report details of the opening of a new place of business including Mobile branch/Mobile ATMs, closure, merger, shifting or conversion of any existing place of business immediately or within two weeks. Still, now banks, including LABs are no longer required to report details of the opening of a new place of business including Mobile branch/Mobile ATMs/ call centres, closure, merger, shifting or conversion of any existing place of business including call centres to the Regional Office concerned of DBS/ DBR CO. They may, however, ensure that the reporting to DSIM.