Power of Reserve Bank to control advances by banking companies
Section 21 of the Banking Regulation Act, 1949 deals with power of Reserve Bank to control advances by banking companies. Where the Reserve Bank is satisfied that it is necessary or expedient in the public interest [or in the interests of depositors] [or banking policy] so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, an The Act came into force on 16 Mar 1949.
(1) Where the Reserve Bank is satisfied that it is necessary or expedient in the public interest 1[or in the interests of depositors] 2[or banking policy] so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, and when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined.
(2) Without prejudice to the generality of the power vested in the Reserve Bank under sub-section (1), the Reserve Bank may give directions to banking companies, either generally or to any banking company or group of banking companies in particular, 3[as to--
(a) the purposes for which advances may or may not be made,
(b) the margins to be maintained in respect of secured advances,
(c) the maximum amount of advances or other financial accommodation which, having regard to the paid-up capital, reserves and deposits of a banking company and other relevant considerations, may be made by that banking company to any one company, firm, association of persons or individual,
(d) the maximum amount up to which, having regard to the considerations referred to in clause (c), guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual, and
(e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given.]
4[(3) Every banking company shall be bound to comply with any directions given to it under this section.]
Section 21, The Banking Regulation Act, 1949 (Act 10 of 1949).
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
-
Icici Bank Limited vs Officl. Liquir. of Aps Star Indus. Ld
Court's Decision & Legal Precedent
Inter se transfer of Non-Performing Assets by banks is a legitimate and legally permissible business activity under the Banking Regulation Act, 1949. Such transfers fall within the scope of banking business as defined by Section 6(1) read with Section 6(1)(n) of the BR Act 1949, are authorized by RBI Guidelines dated July 13, 2005 which have statutory force under Sections 21 and 35A of BR Act, and do not constitute prohibited 'trading in debts' under Section 8 of the Act. Assignment of account receivables with underlying security by one bank to another bank, without assignment of the assignor bank's obligations to the borrower, is legally valid and permissible, and the assignee bank is entitled to be substituted as secured creditor in proceedings relating to companies in liquidation.
On this section: Held as foundational for RBI's authority to frame 'banking policy' and issue directions on advances. Court emphasized that RBI Guidelines on NPA assignment issued under these sections carry statutory force of law and define what constitutes legitimate 'banking business'.
-
Essar Bulk Terminal (salaya) Limited vs Reserve Bank of India
Court's Decision & Legal Precedent
When a statute confers a specific power upon an authority and prescribes the method of its exercise, the authority can only exercise that power in the manner prescribed by the statute. If the statute specifies that directions may be issued regarding 'a default' (singular) only after Central Government authorization for specific cases, the authority cannot issue general directives applicable to all defaults above a particular amount without individual case-by-case consideration. Accordingly, the RBI Circular of February 12, 2018, which applies a blanket mandatory restructuring timeline followed by mandatory insolvency filing to all accounts above Rs 2000 crore, exceeds the scope of authorization granted under Section 35AA of the Banking Regulation Act, 1949, and is therefore ultra vires.
On this section: Addresses RBI's power to control advances by banking companies and issue directions in public interest; Court found this is a general power that cannot override the specific power in Section 35AA
-
Action Ispat and Power (p) LTD vs Reserve Bank of India
Court's Decision & Legal Precedent
The RBI circular dated 12.02.2018 mandating reference of all accounts with aggregate exposure of INR 20 billion and above that default for 180 days to insolvency proceedings is ultra vires Section 35AA of the Banking Regulation Act, 1949, as it issues general directions to a class of borrowers rather than specific directions regarding individual defaults as required by Section 35AA. Section 35AA requires prior Central Government authorization and applies only to specific defaults, not to debtors generally. The power to issue insolvency resolution directions under the Insolvency Code can only be exercised by the RBI under Section 35AA with such authorization - Sections 21 and 35A cannot serve as alternative sources without satisfying Section 35AA's conditions. When a statute prescribes a specific method and conditions for exercising power (requiring Central Government authorization and being specific to individual defaults), the statute by necessary implication prohibits exercise in any other manner (by issuing general circulars applicable to categories of defaults).
On this section: RBI's power to control advances and determine policy for banking companies; cited to show extent of RBI's regulatory powers but distinguished as not being source for insolvency directions without Section 35AA
-
Salim Akbarali Nanji vs Union of India
Court's Decision & Legal Precedent
Writing off non-performing assets is a legitimate internal accounting procedure to clean the balance sheet of a banking company. Such write-off does not require prior approval from the Reserve Bank of India under statutory law, though banking companies customarily seek such approval as a matter of practice. The Reserve Bank of India, in its regulatory capacity, may consider the financial position of the applicant banking company before granting permission to utilize reserves for write-off purposes. The write-off does not extinguish the bank's right to proceed against borrowers to recover the dues; it is merely an accounting entry that does not affect the creditor's legal rights to pursue recovery through available legal remedies. The decision to write off bad debts, when approved by shareholders and supported by adequate reserves and maintained capital adequacy ratios, does not constitute illegal or arbitrary action by the Reserve Bank of India and is not subject to judicial review through writ jurisdiction.
On this section: Empowers RBI to determine policy relating to advances to be followed by banking companies. Court found no evidence that RBI failed to exercise this power or that the bank violated any determined policy.
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Judgments citing this section
These may be obiter dicta or a precedent, for you to study. These are the judgments where this section is quoted.
-
… In case of long duration crops, interest is recovered only annually. COMMENTS OF THE COMMITTEE 1.24 The Committee are dismayed to know that the Department has not paid any heed to the recommendation of the Committee to scrap Section 21 (A) of Banking Regulation Act, 1949 which hinders the provision of Usurious Loans Act, 1918 under which it was, inter alia, provided that the total amount of interest on a loan taken by a farmer could not be higher than the original capital. The Committee, therefore, reiterate their earlier recommendation that …
-
… It is pertinent to note that there is agreed rate of interest in between the parties. Hence as per the contractual terms the same is not subject to the scrutiny of the civil court and outside the purview of the court to re-fix the rate of interest as per section 21(A) of Banking Regulation Act. The parties are bound by the contractual terms. Therefore the plaintiff bank is entitled for the suit claim with the agreed rate of interest as sought for. Accordingly, I answered the issue No.3 in Affirmative and I pass the following order. O R D E R The suit of the plaintiff …
Questions about Section 21
What have the courts held on Section 21 of the Banking Regulation Act?
Icici Bank Limited vs Officl. Liquir. of Aps Star Indus. Ld (30 Sep 2010) is the leading judgment on this section among those set out below: Held as foundational for RBI's authority to frame 'banking policy' and issue directions on advances. Court emphasized that RBI Guidelines on NPA assignment issued under these sections carry statutory force of law and define what constitutes legitimate 'banking business'. Another 3 judgments on this section are set out below, all of them from the Supreme Court. They run from 2006 to 2019.
How do I find court cases under Section 21 of the Banking Regulation Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Banking Regulation Act 1949 21, section 21 Banking Regulation Act 1949, section 21 of the Banking Regulation Act. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 4 reported judgments on this section are set out on this page, beginning with Icici Bank Limited vs Officl. Liquir. of Aps Star Indus. Ld (30 Sep 2010).
What should I read with Section 21 of the Banking Regulation Act, and has it changed?
2 other provisions in this corpus refer back to it.
When did Section 21 of the Banking Regulation Act come into force?
Section 21 of the Banking Regulation Act, cited as Banking Regulation Act 1949 21, came into force on 16 Mar 1949, having been enacted on 10 Mar 1949. It is in force as at the date shown on this page.
Other sections of this Act
- 56. Act to apply to co-operative societies subject to modifications5544 words
- 45. Power of Reserve Bank to apply to Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation2310 words
- 10B. Banking company to be managed by whole time chairman1171 words
- 5. Interpretation1164 words
- 43A. Preferential payments to depositors1031 words
- 11. Requirement as to minimum paid-up capital and reserves988 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Text as in force on 15 Oct 2026. This page is not a substitute for legal advice.