Section 19 of BRA : Section 19: Restriction On Nature Of Subsidiary Companies

Explanation using Example

Imagine a bank named "SafeBank," which primarily offers traditional banking services. SafeBank wants to diversify its operations and considers forming a new company to manage a chain of ATMs across the country. According to Section 19(1)(a) of the Banking Regulation Act, 1949, SafeBank is allowed to create a subsidiary for this purpose, as operating ATMs falls within the range of banking activities permitted under Section 6.

In another scenario, SafeBank may wish to establish a banking presence in a foreign country. To do this, it must seek prior written permission from the Reserve Bank of India (RBI) as per Section 19(1)(b), since this involves carrying out banking business exclusively outside India.

Furthermore, SafeBank cannot own more than 30% of the paid-up share capital of any non-banking company, or 30% of its own paid-up share capital and reserves, whichever is less, as stated in Section 19(2). If SafeBank already owns more shares than allowed, it must report this to the RBI and reduce its shareholding within the timeframe specified by the RBI to avoid penalties.

Lastly, if the managing director of SafeBank is interested in another company's management, SafeBank cannot hold shares in that company after one year from the commencement of the Act, according to Section 19(3).