Section 19: Restriction on Nature of Subsidiary Companies
Section 19 of the Banking Regulation Act, 1949 controls the kinds of subsidiary companies that a banking company may form and also limits the shares that a banking company may hold in other companies. The provision is designed to keep banking companies within permitted financial and banking-related activities and to reduce conflicts arising from excessive or connected corporate shareholdings.
Updated: September 13, 2026
Section 19 at a glance
- A banking company may form subsidiaries only for purposes permitted by Section 19(1), subject to the conditions stated there.
- Section 19(2) generally caps a bank's shareholding in another company at 30 per cent of that company's paid-up share capital or 30 per cent of the bank's own paid-up share capital and reserves, whichever is less.
- Section 19(3) places a separate restriction where the bank's managing director or manager is concerned or interested in the management of another company.
- Section 19(4) permits formation of a subsidiary for credit-information business in accordance with the Credit Information Companies (Regulation) Act, 2005, subject to the statutory wording.
Meaning and scope of Section 19
Section 19 is part of the provisions governing the business and corporate activities of banking companies. It should be read with the Banking Regulation Act, 1949, especially Section 6, which identifies forms of business in which banking companies may engage, and Section 8, which restricts trading activity.
Current text and explanation of Section 19
Section 19(1): Permitted subsidiary companies
(1) A banking company shall not form any subsidiary company except a subsidiary company formed for one or more of the following purposes, namely:-
(a) the undertaking of any business which, under clauses (a) to (o) of sub-section (1) of section 6, is permissible for a banking company to undertake; or
(b) with the previous permission in writing of the Reserve Bank, the carrying on of the business of banking exclusively outside India; or
(c) the undertaking of such other business which the Reserve Bank may, with the prior approval of the Central Government, consider conducive to the spread of banking in India or otherwise useful or necessary in the public interest.
Explanation: For the purposes of Section 8, a banking company is not treated, merely because it forms or has a subsidiary company, as indirectly engaging in the business carried on by that subsidiary company.
In practical terms, subsection (1) confines subsidiaries to banking-related or statutorily permitted business. An overseas banking subsidiary requires prior written permission of the Reserve Bank of India under clause (b). Clause (c) allows other business only when the Reserve Bank, with prior approval of the Central Government, considers that business conducive to the spread of banking or otherwise useful or necessary in the public interest.
Sub-section (1) was substituted by Act 1 of 1984, Section 22, with effect from February 15, 1984.
Section 19(2): Limit on shares held in another company
(2) Save as provided in sub-section (1), no banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding thirty per cent of the paid-up share capital of that company or thirty per cent of its own paid-up share capital and reserves, whichever is less.
The statutory proviso protects certain holdings existing at the commencement of the Act where the matter was reported without delay to the Reserve Bank and the holding was brought into conformity within the period allowed by the Reserve Bank, not exceeding two years.
This subsection uses a two-part ceiling. The relevant maximum is the lower of: (i) 30 per cent of the paid-up share capital of the company whose shares are held; and (ii) 30 per cent of the banking company's own paid-up share capital and reserves.
Section 19(3): Restriction where management is connected
(3) Save as provided in sub-section (1) and notwithstanding anything contained in sub-section (2), a banking company shall not, after the expiry of one year from the date of the commencement of this Act, hold shares, whether as pledgee, mortgagee or absolute owner, in any company in the management of which any managing director or manager of the banking company is in any manner concerned or interested.
This is an additional conflict-of-interest restriction. Even where the numerical ceiling in subsection (2) might otherwise be satisfied, subsection (3) separately restricts holdings in a company whose management is connected with the banking company's managing director or manager, subject to the exception stated in subsection (1).
Section 19(4): Subsidiary for credit-information business
(4) Save as provided in clause (c) of sub-section (1), a banking company may form a subsidiary company to carry on the business of credit information in accordance with the Credit Information Companies (Regulation) Act, 2005 (30 of 2005).
Subsection (4) expressly addresses a subsidiary formed to undertake credit-information business under the Credit Information Companies (Regulation) Act, 2005.
Sub-section (4) was inserted by Act 30 of 2005, Section 34 and the Schedule, with effect from December 14, 2006.
Practical compliance points
A banking company considering a subsidiary or equity holding should identify the statutory basis for the proposed activity before proceeding. Where a proposal depends on RBI permission or Central Government approval, the approval requirement should be addressed before the subsidiary is formed or the relevant activity is undertaken. Shareholdings should also be tested against the lower-of-two 30 per cent ceiling in subsection (2), together with the connected-management prohibition in subsection (3).
Related provisions
Section 19 should be read in context with Section 6 on forms of business in which banking companies may engage, Section 8 on prohibition of trading, and the neighbouring provisions dealing with reserves, loans, advances and RBI control. For continuity, use the related Section 16 to Section 30 links in the sidebar.
Official legal references
For authoritative verification, consult the current text of the Banking Regulation Act, 1949 on India Code and relevant regulatory material published by the Reserve Bank of India. The Credit Information Companies (Regulation) Act, 2005 should also be consulted when applying subsection (4).