Section 10 of the Banking Regulation Act, 1949: Employment and Management Restrictions
Section 10 of the Banking Regulation Act, 1949 restricts banking companies from employing managing agents and from employing or being managed by specified categories of persons. It also regulates certain forms of remuneration and gives the Reserve Bank of India power to examine whether remuneration is excessive.
Last reviewed: 13 September 2026
What Section 10 regulates
| Area | Rule under Section 10 |
|---|---|
| Managing agents | A banking company cannot employ or be managed by a managing agent. |
| Employment disqualifications | The section restricts employment of persons with specified insolvency, creditor-compromise or criminal-conviction history. |
| Commission or profit-linked pay | Such remuneration is restricted, subject to the express statutory exceptions for specified bonuses and contractual commissions. |
| Excessive remuneration | The RBI may form an opinion that remuneration is excessive after considering the statutory factors in sub-section (2). |
| Management restrictions | The section restricts management by persons holding specified outside directorships, carrying on another business or vocation, or exceeding the prescribed term limits. |
Current statutory text of Section 10
The text below follows the current consolidated text published on India Code. Editorial explanations on this page are separate from the statutory wording.
10. Prohibition of employment of managing agents and restrictions on certain forms of employment.—(1) No banking company—
(a) shall employ or be managed by a managing agent; or
(b) shall employ or continue the employment of any person—
(i) who is, or at any time has been, adjudicated insolvent, or has suspended payment or has compounded with his creditors, or who is, or has been, convicted by a criminal court of an offence involving moral turpitude; or
(ii) whose remuneration or part of whose remuneration takes the form of commission or of a share in the profits of the company:
Provided that nothing contained in this sub-clause shall apply to the payment by a banking company of—
(a) any bonus in pursuance of a settlement or award arrived at or made under any law relating to industrial disputes or in accordance with any scheme framed by such banking company or in accordance with the usual practice prevailing in banking business;
(b) any commission to any broker (including guarantee broker), cashier-contractor, clearing and forwarding agent, auctioneer or any other person, employed by the banking company under a contract otherwise than as a regular member of the staff of the company; or
(iii) whose remuneration is, in the opinion of the Reserve Bank, excessive; or
(c) shall be managed by any person—
(i) who is a director of any other company not being—
(a) a subsidiary of the banking company, or
(b) a company registered under section 25 of the Companies Act, 1956 (1 of 1956):
Provided that the prohibition in this sub-clause shall not apply in respect of any such director for a temporary period not exceeding three months or such further period not exceeding nine months as the Reserve Bank may allow; or
(ii) who is engaged in any other business or vocation; or
(iii) whose term of office as a person managing the company is for a period exceeding five years at any one time:
Provided that the term of office of any such person may be renewed or extended by further periods not exceeding five years on each occasion subject to the condition that such renewal or extension shall not be sanctioned earlier than two years from the date on which it is to come into force:
Provided also that where the term of office of such person is for an indefinite period, such term, unless it otherwise comes to an end earlier, shall come to an end immediately on the expiry of five years from the date of his appointment or on the expiry of three months from the date of commencement of section 8 of the Banking Laws (Miscellaneous Provisions) Act, 1963 (55 of 1963), whichever is later:
Provided further that nothing in this clause shall apply to a director, other than the managing director, of a banking company by reason only of his being such director.
Explanation.—For the purpose of sub-clause (iii) of clause (b), the expression "remuneration", in relation to person employed or continued in employment, shall include salary, fees and perquisites but shall not include any allowances or other amounts paid to him for the purpose of reimbursing him in respect of the expenses actually incurred by him in the performance of his duties.
(2) In forming its opinion under sub-clause (iii) of clause (b) of sub-section (1), the Reserve Bank may have regard among other matters to the following:—
(i) the financial condition and history of the banking company, its size and area of operation, its resources, the volume of its business, and the trend of its earning capacity;
(ii) the number of its branches or offices;
(iii) the qualifications, age and experience of the person concerned;
(iv) the remuneration paid to other persons employed by the banking company or to any person occupying a similar position in any other banking company similarly situated; and
(v) the interests of its depositors.
(6) Any decision or order of the Reserve Bank made under this section shall be final for all purposes.
Legislative notes: Section 10 was substituted by Act 95 of 1956 with effect from 14 January 1957. Later amendments include Act 33 of 1959 and Act 55 of 1963. Sub-sections (3), (4) and (5) were omitted by Act 55 of 1963.
Meaning and practical effect of Section 10
1. Managing agents are prohibited
Clause (a) directly prevents a banking company from employing or being managed by a managing agent. The rule reflects the special regulatory treatment of banking companies, where management structures are subject to statutory controls designed to protect depositors and the stability of the institution.
2. Certain persons cannot be employed or continued in employment
Clause (b)(i) covers specified financial and criminal disqualifications. It includes a person who has been adjudicated insolvent, suspended payment, compounded with creditors, or been convicted by a criminal court of an offence involving moral turpitude.
3. Commission and profit-linked remuneration are restricted
Clause (b)(ii) generally bars remuneration that takes the form of commission or a share in the profits of the banking company. The proviso, however, expressly preserves specified bonus payments and contractual commissions paid to persons such as brokers, cashier-contractors, clearing and forwarding agents and auctioneers who are not regular members of staff.
4. RBI can examine whether remuneration is excessive
Under clause (b)(iii), employment is restricted where remuneration is, in the opinion of the Reserve Bank, excessive. Sub-section (2) identifies matters the RBI may consider, including the bank's financial condition, size and business, number of branches, the person's qualifications and experience, comparable remuneration and the interests of depositors.
5. Restrictions apply to persons managing a banking company
Clause (c) limits management by persons with specified outside directorships, persons engaged in another business or vocation, and persons whose management term exceeds five years at one time. Renewals or extensions are permitted subject to the conditions stated in the section.
RBI's role under Section 10
The Reserve Bank of India is central to the operation of Section 10. It may determine whether remuneration is excessive, allow the temporary continuation of an otherwise restricted outside directorship within the limits stated by the section, and its decisions or orders under Section 10 are declared final for all purposes by sub-section (6).
Official legal sources
India Code - Banking Regulation Act, 1949 (official consolidated PDF)
India Code - Central Acts database
This page is intended for general legal information. For a transaction, appointment, employment decision or regulatory filing, the latest statutory text, applicable RBI directions and professional advice should be checked.