Banking and Insurance - Laws and Practice · Control over Organization of Banks

Paid-up Capital, Reserves and Subscribed Capital of Banking Companies

Updated 11 October 2026 · Fact-checked

Section 11 of the Banking Regulation Act, 1949 sets the minimum aggregate of paid-up capital and reserves a banking company must hold, based on where and how widely it operates. Section 12 sets the capital structure: subscribed capital at least half of authorised, paid-up at least half of subscribed, and a 10% voting cap on poll.

Understand Paid-up Capital, Reserves and Subscribed Capital Requirements

A bank takes public deposits, so the law wants it to have a real capital cushion. Sections 11 and 12 of the Banking Regulation Act, 1949 do this in two ways. Section 11 fixes a minimum amount of paid-up capital and reserves. Section 12 controls the shape of the capital and who can control the bank through votes.

Start with the three capital terms. Authorised capital is the maximum the company may raise as per its charter. Subscribed capital is the part that investors have agreed to take. Paid-up capital is the part they have actually paid. Section 12(1)(i) says subscribed capital must be at least one-half of authorised capital, and paid-up capital at least one-half of subscribed capital. If capital is increased, the bank must meet these ratios again within a period of up to two years, as RBI may allow.

Section 11 works on the aggregate value of paid-up capital and reserves. Value means the real or exchangeable value, not the nominal figure in the books (section 11(5)(b)). The amount depends on the type of bank. A bank incorporated outside India has one fixed test and also a deposit with RBI. A bank to which that rule does not apply (an Indian bank) is tested by a sliding scale based on the number and location of its places of business.

Section 12 adds structure rules. The capital can consist of equity shares only, or equity and preference shares, and preference shares must follow RBI guidelines. A shareholder cannot vote on a poll for more than ten per cent of total voting rights, though RBI may raise this ceiling in a phased manner up to twenty-six per cent. The Chairman, MD or CEO must report their shareholding in the bank to RBI.

Key rules to remember

Foreign bank minimum (s. 11(2)(a)): Paid-up capital + reserves ≥ ₹15 lakh; ≥ ₹20 lakh if it has a place of business in Bombay or Calcutta or both; Applies to a banking company incorporated outside India.
Foreign bank deposit with RBI (s. 11(2)(b)): Deposit ≥ the minimum under clause (a), plus 20% of each year's profit from business through its Indian branches; Kept in cash or unencumbered approved securities, or both. Can be swapped between cash and securities if the total is unchanged. Central Government may exempt the yearly top-up on RBI's recommendation (s. 11(2A)).
Indian bank, more than one State (s. 11(3)(i)): Paid-up capital + reserves ≥ ₹5 lakh; ≥ ₹10 lakh if any place is in Bombay or Calcutta; For banks to which s. 11(2) does not apply.
Indian bank, one State, none in Bombay or Calcutta (s. 11(3)(ii)): ₹1,00,000 (principal place) + ₹10,000 × other places in same district + ₹25,000 × places elsewhere in the State; Capped at ₹5 lakh in total. A bank with only one place need not exceed ₹50,000. A bank starting banking business for the first time after the Banking Companies (Amendment) Act, 1962 needs paid-up capital of at least ₹5 lakh.
Indian bank, one State, with Bombay or Calcutta (s. 11(3)(iii)): ₹5,00,000 + ₹25,000 × each place outside Bombay or Calcutta; Capped at ₹10 lakh in total.
25-mile rule (Explanation to s. 11(3)): A place in another State within 25 miles of the principal place is treated as in the same State; Use it before deciding which clause applies.
Capital ratios (s. 12(1)(i)): Subscribed ≥ ½ × Authorised; Paid-up ≥ ½ × Subscribed; After a capital increase, comply within up to two years as RBI allows.
Voting ceiling (s. 12(2)): Voting rights on poll ≤ 10% of total voting rights of all shareholders; RBI may raise the ceiling in phased manner up to 26%.

How to solve Paid-up Capital, Reserves and Subscribed Capital Requirements questions

Use this order for any question on capital and reserves requirements. It keeps the facts, the provision and the conclusion separate.

1Identify the issue: minimum capital and reserves (s. 11), capital structure (s. 12(1)), or voting rights and shareholding (s. 12(2) to (4)).
2For s. 11, decide whether the bank is incorporated outside India or is an Indian bank. This picks sub-section (2) or (3).
3For an Indian bank, list its places of business and States. Apply the 25-mile Explanation first. Remember that place of business includes any office, sub-office, sub-pay office, and any place where deposits are received, cheques cashed or money lent.
4Pick the clause: (i) more than one State, (ii) one State with no place in Bombay or Calcutta, or (iii) one State with a place in Bombay or Calcutta.
5Compute the amount step by step, then apply the cap or proviso. Remember that value means real or exchangeable value, and RBI's determination in a dispute is final (s. 11(6)).
6For s. 12, test the ratios in order: subscribed against authorised, then paid-up against subscribed. For voting, apply the 10% ceiling on poll, subject to any RBI increase.
7State the conclusion clearly: compliant or not, the shortfall, and the consequence (the bank cannot carry on business in India unless it complies).

Quickest way: Three-question screen

When to use it: Use when time is short and the question gives a bank profile or capital figures.

Ask: foreign or Indian bank? Foreign means ₹15 lakh or ₹20 lakh plus the RBI deposit.
Ask: how many States, and any place in Bombay or Calcutta? That gives clause (i), (ii) or (iii) of s. 11(3).
Compute, then check the cap. Caps are ₹5 lakh for clause (ii) and ₹10 lakh for clause (iii).
For capital structure, halve twice: authorised, then subscribed, then paid-up.
For voting, write 10% on poll, with RBI able to raise it up to 26%.

Common mistakes in Paid-up Capital, Reserves and Subscribed Capital Requirements

Forgetting the cap after adding per-branch amounts
Students add up branch-wise figures and stop.
Fix: Always compare the total with the cap: ₹5 lakh under s. 11(3)(ii), ₹10 lakh under s. 11(3)(iii). The cap applies even if the sum is higher.
Treating nominal book value as the test
Students read capital figures straight from the balance sheet.
Fix: State that s. 11(5)(b) uses real or exchangeable value, and that RBI's determination on a dispute is final under s. 11(6).
Mixing up authorised, subscribed and paid-up capital in the half-rule
Both ratios use 'one-half' and the base changes.
Fix: Subscribed is half of authorised. Paid-up is half of subscribed, not half of authorised. So minimum paid-up is one-quarter of authorised.
Ignoring the 25-mile Explanation
Students count States by address alone.
Fix: A place in another State within 25 miles of the principal place is deemed to be in the same State. Apply this before choosing the clause.
Saying the 10% voting cap applies to shareholding
Voting and holding are confused.
Fix: Section 12(2) limits voting rights on poll to 10% of total voting rights. A person may hold more shares, but cannot vote above the ceiling. RBI may raise it in phases up to 26%.
Applying the foreign bank rules to Indian banks
Sub-sections (2) and (3) look alike.
Fix: The ₹15 lakh or ₹20 lakh test and the RBI deposit apply to banks incorporated outside India. Sub-section (3) applies to banks to which sub-section (2) does not apply.

Worked examples

Example 1

Sundaram Bank Ltd, an Indian banking company, has all its places of business in Tamil Nadu, none in Bombay or Calcutta. Its principal place is in Chennai. It has 4 other places in Chennai district and 6 places elsewhere in the State. Find the minimum aggregate of paid-up capital and reserves required under s. 11.

Show the solution

The bank is an Indian bank, so s. 11(3) applies. All places are in one State and none is in Bombay or Calcutta, so clause (ii) applies.
Principal place: ₹1,00,000.
Other places in the same district: 4 × ₹10,000 = ₹40,000.
Places elsewhere in the State: 6 × ₹25,000 = ₹1,50,000.
Total = ₹1,00,000 + ₹40,000 + ₹1,50,000 = ₹2,90,000.
Cap check: the cap is ₹5,00,000, and ₹2,90,000 is below it, so the cap does not bite.

Answer: The minimum aggregate of paid-up capital and reserves is ₹2,90,000, measured at real or exchangeable value.

Example 2

Bharat Commercial Bank Ltd has authorised capital of ₹200 crore, subscribed capital of ₹90 crore and paid-up capital of ₹50 crore. A shareholder holds 18% of its voting shares. Examine compliance with s. 12 and the shareholder's voting position. Assume RBI has not raised the ceiling.

Show the solution

Section 12(1)(i) needs subscribed capital of at least one-half of authorised capital: ½ × ₹200 crore = ₹100 crore.
Subscribed capital is ₹90 crore, which is below ₹100 crore. The first condition is not met.
Paid-up capital must be at least one-half of subscribed capital: ½ × ₹90 crore = ₹45 crore. Paid-up capital is ₹50 crore, so this condition is met.
Because the first condition fails, the bank does not satisfy s. 12(1), and it cannot carry on business in India unless it complies. It should raise subscribed capital to at least ₹100 crore, or reduce authorised capital to ₹180 crore or less.
Voting: s. 12(2) bars a holder from voting on poll for more than 10% of total voting rights. The shareholder can vote only up to 10%, though he may hold 18% of the shares. RBI may raise the ceiling in phases up to 26%, but that has not happened here.

Answer: The bank breaches the first condition of s. 12(1)(i): subscribed capital is ₹90 crore against the ₹100 crore needed. The paid-up condition is met. The shareholder's votes on poll are limited to 10% of total voting rights.

Exam tips

Write the section number with each rule: s. 11 for minimum amounts, s. 12 for structure and voting. Use only what the Act says.
In numerical questions, show each component of the s. 11(3)(ii) or (iii) formula on its own line, then check the cap. Marks go for method.
Check the 25-mile Explanation and the definition of place of business before you count branches.
Close case answers with a clear conclusion: complies or not, the shortfall, and that a non-compliant bank cannot carry on business in India.
Keep the distinction between foreign and Indian banks at the start of your answer. It shows the examiner you picked the right sub-section.

Practice questions from Control over Organization of Banks

Paid-up Capital, Reserves and Subscribed Capital Requirements: frequently asked questions

What is the minimum paid-up capital and reserves for a bank under Section 11?

It depends on the bank. A bank incorporated outside India needs ₹15 lakh, or ₹20 lakh if it has a place of business in Bombay or Calcutta. An Indian bank is tested by the number of States and places of business, with amounts and caps given in s. 11(3).

What is the difference between authorised, subscribed and paid-up capital of a bank?

Authorised capital is the maximum capital the company may raise. Subscribed capital is what shareholders have agreed to take. Paid-up capital is what they have actually paid. Section 12(1)(i) requires subscribed to be at least half of authorised, and paid-up at least half of subscribed.

What is the voting rights limit under Section 12?

No shareholder can exercise voting rights on a poll beyond ten per cent of the total voting rights of all shareholders. RBI may increase this ceiling in a phased manner up to twenty-six per cent.

What kind of shares can a banking company issue?

Its capital must consist of equity shares only, or equity shares and preference shares. Preference shares must be issued as per RBI guidelines on class, extent and terms. Their holders cannot exercise the voting right under the old Companies Act provision named in s. 12.

Does a foreign bank have to deposit money with RBI?

Yes. Under s. 11(2)(b), it must keep with RBI at least the minimum capital amount, and after each year add 20% of its profit from business through Indian branches. The deposit is held in cash or unencumbered approved securities, and the Central Government can exempt the yearly top-up under s. 11(2A).