Banking Regulation Act, 1949 · Section guide
Section 17: Reserve Fund
Reviewed by CA Nikhil Gupta · Last reviewed 18 September 2026
Section 17 requires every banking company incorporated in India to create a reserve fund and, before declaring dividend, transfer at least 20% of the year’s profit disclosed in the Section 29 profit and loss account. The Central Government—not RBI acting alone—may, on RBI’s recommendation, exempt a banking company from subsection (1) for a specified period if the statutory capital-and-reserve condition is satisfied. Any appropriation from the reserve fund or share premium account must be reported to RBI within 21 days, subject to RBI’s power to extend or condone delay.
Official statute linkedProvision-specific anatomyPractical case + evidence file
Statutory structure and clause/subsection decode
Section 17(1) — annual transfer
Indian-incorporated banking companies must transfer not less than 20% of the balance of annual profit, before dividend, to the reserve fund.
Section 17(1A) — exemption order
The Central Government may, on RBI’s recommendation and after considering paid-up capital/reserves relative to deposit liabilities, declare by written order that subsection (1) will not apply for a specified period.
Proviso to Section 17(1A)
No exemption order may be made unless reserve fund plus share premium is at least equal to the paid-up capital when the order is made.
Section 17(2) — appropriation reporting
If any sum is appropriated from reserve fund or share premium, the bank must report it to RBI within 21 days and explain the circumstances; RBI may extend the period or condone delay.
Practical example
A banking company incorporated in India reports ₹100 crore profit under Section 29 and proposes a dividend. Unless a valid Central Government exemption order under Section 17(1A) applies, at least ₹20 crore must first be transferred to the reserve fund. If the bank later appropriates ₹5 crore from the reserve fund, it must report that appropriation and the circumstances to RBI within 21 days, unless RBI extends or condones the delay.
Linked Rules, RBI directions, notifications and forms
Linked instruments keep their own legal basis; they are not attributed to Section 17 unless the official instrument says so.
Related sections inside the Act
Use these links to read Section 17 in its statutory sequence, especially where the provision imports definitions, approvals, appeals, penalties or winding-up consequences from neighbouring sections.
Current-law source control
Source control: Section 17 is anchored to the official DFS consolidated text; later changes require separate Gazette verification.
Dated matters: verify any later Gazette, RBI direction or binding judgment affecting Section 17 on the event date.
Section 17 Q&A
Who may exempt a bank from the annual Section 17 transfer?
The Central Government may do so by written order on RBI’s recommendation, subject to the conditions in Section 17(1A).
What is the minimum annual reserve transfer under Section 17(1)?
Not less than 20% of the balance of profit for the year disclosed in the Section 29 profit and loss account, before dividend is declared.
What happens if the bank appropriates money from reserve fund or share premium?
Section 17(2) requires a report to RBI within 21 days explaining the circumstances, subject to RBI’s power to extend or condone delay.
Which official source controls?
The Department of Financial Services consolidated Banking Regulation Act is the base statutory source; later amendments and commencement instruments must be checked separately.
Primary official sources
Disclaimer
This Finin2min page is an educational and professional reference. Banking regulation is fact-, entity- and date-sensitive. Verify the current Act, Gazette amendments and commencement notifications, applicable RBI Rules/directions and the transaction record before acting or filing.