Banking Regulation Act, 1949

Section 23: Restrictions on Opening New and Transfer of Existing Places of Business

Section 23 of the Banking Regulation Act, 1949 regulates the opening of new places of business and certain transfers of existing places of business by banking companies. The statutory rule requires prior permission of the Reserve Bank of India in the situations specified in the section. RBI has, however, issued branch authorisation and banking outlet guidelines that provide general permission to eligible banks for many domestic outlets, subject to prescribed conditions.

Current position in brief: The statutory language of Section 23 remains the foundation. For domestic scheduled commercial banks and certain other eligible banks, RBI's revised branch authorisation policy permits opening of banking outlets in Tier 1 to Tier 6 centres without case-by-case prior permission, unless specifically restricted, subject to financial inclusion and reporting requirements. Banks outside the scope of general permission, and transactions not covered by the relaxation, remain governed by the applicable approval framework.
Contents

Meaning and Purpose of Section 23

The object of Section 23 is to place the geographical expansion and relocation of banking business under RBI supervision. The provision enables RBI to consider the financial condition of the bank, the quality of its management, capital adequacy, earning prospects and public interest before permitting a new place of business or a qualifying change of location.

The expression "place of business" is defined in sub-section (5) to include a sub-office, pay office, sub-pay office and any place where deposits are received, cheques are cashed or money is lent. This statutory definition is important when determining whether a proposed facility falls within Section 23.

Section 23 - Statutory Text

(1) Without obtaining the prior permission of the Reserve Bank -

(a) no banking company shall open a new place of business in India or change, otherwise than within the same city, town or village, the location of an existing place of business situated in India; and

(b) no banking company incorporated in India shall open a new place of business outside India or change, otherwise than within the same city, town or village in any country or area outside India, the location of an existing place of business situated in that country or area.

Proviso: Nothing in this sub-section applies to the opening, for a period not exceeding one month, of a temporary place of business within a city, town or village or its environs where the banking company already has a place of business, for providing banking facilities to the public on the occasion of an exhibition, conference, mela or other like occasion.

(2) Before granting permission under this section, the Reserve Bank may require to be satisfied, by an inspection under Section 35 or otherwise, as to the financial condition and history of the company, the general character of its management, the adequacy of its capital structure and earning prospects, and that public interest will be served by the opening or change of location.

(3) The Reserve Bank may grant permission under sub-section (1) subject to such conditions as it thinks fit to impose, either generally or with reference to a particular case.

(4) Where, in the opinion of the Reserve Bank, a banking company has failed to comply with any condition imposed under this section, RBI may, by written order and after giving the banking company a reasonable opportunity to show cause, revoke the permission granted under this section.

(4A) A Regional Rural Bank requiring permission under this section must forward its application to RBI through the National Bank, which gives its comments on the merits and sends it to RBI. The RRB must also send an advance copy of the application directly to RBI.

(5) For the purposes of this section, "place of business" includes any sub-office, pay office, sub-pay office and any place of business at which deposits are received, cheques are cashed or moneys are lent.

Statutory source: The official text of the Banking Regulation Act, 1949 is available on India Code. Readers should consult the latest official text and RBI directions where a live regulatory decision is involved.

Section 23 Explained Sub-section by Sub-section

1. Opening or shifting a place of business

Sub-section (1) contains the main restriction. A banking company cannot, merely as a matter of internal business choice, open a new place of business or shift an existing place of business outside the same city, town or village where RBI permission is legally required. In practice, RBI's later general-permission framework must be read together with this provision.

2. Temporary places of business

The proviso creates a limited statutory exception for a temporary place of business opened for not more than one month in connection with an exhibition, conference, mela or similar occasion, provided the bank already has a place of business within that city, town, village or its environs.

3. RBI's assessment before permission

Under sub-section (2), RBI may assess the bank's financial history, management, capital structure and earning prospects, and whether the proposed opening or relocation serves public interest. RBI may use an inspection under Section 35 or other material for this assessment.

4. Conditions and revocation

Under sub-sections (3) and (4), RBI can impose conditions when granting permission and may revoke the permission if those conditions are breached. Revocation requires a written order and a reasonable opportunity for the banking company to show cause.

5. Meaning of place of business

The definition in sub-section (5) is intentionally broad. It includes not only a conventional branch but also specified sub-offices and any place at which core banking functions such as accepting deposits, cashing cheques or lending money are carried on.

RBI Branch Authorisation and Banking Outlet Policy

RBI revised its branch authorisation framework on May 18, 2017 through the circular titled Rationalisation of Branch Authorisation Policy - Revision of Guidelines. These guidelines introduced the concept of a Banking Outlet and broadened general permission for eligible banks.

Topic RBI regulatory position
Banking Outlet A fixed-point service delivery unit, manned by bank staff or a Business Correspondent, providing specified banking services for at least four hours a day and at least five days a week, with prescribed signage, supervision and grievance arrangements.
Part-time Banking Outlet A fixed-point service delivery unit that does not meet the minimum four-hours-per-day and five-days-per-week threshold.
General permission Domestic scheduled commercial banks, other than RRBs, are generally permitted to open banking outlets in Tier 1 to Tier 6 centres without obtaining RBI permission in each case, unless otherwise specifically restricted.
Financial inclusion condition The 2017 framework requires at least 25 percent of banking outlets opened during a financial year to be opened in unbanked rural centres, subject to the detailed counting rules and later applicable instructions.
ATMs and similar machines ATMs, e-lobbies, Cash Deposit Machines and similar automated facilities are not treated as banking outlets merely by reason of their installation under the 2017 definition.

Important distinction: Section 23 states the statutory requirement, while RBI's branch authorisation policy determines where general permission or regulatory relaxation applies. A bank should therefore check the Act together with the RBI directions applicable to its category, location, proposed facility and regulatory status.

Connection with Section 35 Inspection

Section 35 of the Banking Regulation Act empowers RBI to inspect banking companies in the circumstances provided by law. Section 23(2) expressly permits RBI to rely on an inspection under Section 35, or otherwise, before deciding whether the statutory criteria for permission are satisfied.

Regional Rural Banks

Section 23(4A) specifically addresses Regional Rural Banks. Where an RRB requires permission under Section 23, its application is routed through the National Bank for Agriculture and Rural Development, which comments on the merits and forwards the application to RBI. An advance copy is also sent directly to RBI. RBI has issued separate branch authorisation instructions for RRBs, and those instructions should be checked for current operational requirements.

Legislative Notes

  • Section 23 was substituted by Act 33 of 1959, section 14, with effect from October 1, 1959.
  • Sub-section (4A) was inserted by Act 61 of 1981, section 61 and the Second Schedule, with effect from May 1, 1982.

Official Legal Resources

Disclaimer: This page is a general legal information resource. Banking regulation is implemented through the Act together with RBI directions, circulars and institution-specific conditions. For a current regulatory transaction, verify the latest RBI instruction applicable to the bank and proposed place of business.