New Delhi: India’s banking sector regulator, the Reserve Bank of India on Tuesday announced major action against one of the top public sector banks in the country – the Bank of Baroda and stopped it from onboarding new customers on its mobile banking app known as ‘bob World’.
The Gujarat headquartered Bank of Baroda, which was established in 1908 in Vadodara, Gujarat prides itself in being the International Bank of India. In a statement issued on Tuesday evening, the RBI said it has taken action against Bank of Baroda under Section 35A of the Banking Regulation Act of 1949.
The RBI said the action against the Bank of Baroda has been taken in the exercise of its power under Section 35A of the Banking Regulation Act of 1949 and the Bank of Baroda has been directed to suspend any further onboarding of their customers onto the ‘bob World’ mobile application with immediate effect.
“This action is based on certain material supervisory concerns observed in the manner of onboarding of their customers onto this mobile application,” said the Reserve Bank. The RBI said any further onboarding of customers of the bank on the ‘bob World’ application will be subject to rectification of the deficiencies observed and strengthening of the related processes by the bank to the satisfaction of RBI.
The Bank of Baroda’s mobile banking app bob World has over five crore downloads on Google Play store as of Tuesday (October 10, 2023). To protect the interest of such a huge customer base of Bank of Baroda, the RBI also clarified that the Bank of Baroda has been further directed to ensure that already onboarded ‘bob World’ customers do not face any disruption on account of this suspension.
What is Section 35A of the Banking Regulation Act of 1949?
Though the Reserve Bank of India was created by an act of the then Imperial Legislative Council passed in 1934 during the British Raj after the independence, the Union government enacted a separate law in 1949, giving the supervisory powers to the Reserve Bank of India over the banking companies operating in the country.
While Section 35 of the Banking Regulation Act of 1949 authorises the RBI to inspect any books of account or documents of a banking company operating in the country, Section 35A gives powers to the Reserve Bank of India to give directions to any banking company operating in the country.
The Reserve Bank can exercise its power under Section 35A of the Act if it is satisfied that issuing such direction to a banking company is in the public interest or it is in the interest of banking policy. The RBI can also issue directions to any bank in India if it is satisfied that it is necessary to prevent the affairs of any banking company from being conducted in a manner detrimental to the interests of the depositors or a manner prejudicial to the interests of the banking company.
Moreover, the RBI can also issue directions to any banking company in India to secure the proper management of any banking company in general if it is necessary to issue directions to banking companies generally or to any banking company in particular. In such a situation, the RBI may issue such directions as it deems fit, and the banking companies or a particular bank will be bound to comply with such directions under the law. However, the Reserve Bank may, on representation made to it or on its motion, modify or cancel any direction, and impose such conditions as it thinks fit.
