Adiiti Aggarwal

Figure 1: Illustration of the Banking Sector Image by Sirichai Puangsuwan / Source: Vecteezy

Introduction

The Banking Laws (Amendment) Bill aims to create a more current and complete regulatory framework of financial services in India by amending five key statutes: the Reserve Bank of India Act, 1934; the Banking Regulation Act, 1949; the State Bank of India Act, 1955; and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. This legislation was initially proposed as part of the Union Budget for 2023-24 with the intent to improve the governance of banks, enhance protections for depositors and investors, and ease the processes of banking for customers.

Timeline

August 9, 2024: Introduced in Lok Sabha.

December 3, 2024: Passed by Lok Sabha (Voice Vote).

March 26, 2025: Passed by Rajya Sabha.

April 15, 2025: Received Presidential Assent (Enacted as Act No. 16 of 2025).

August 1, 2025: Operationalization of governance norms (Director tenure, Substantial interest).

November 1, 2025: Implementation of new Nomination Rules (4 nominees).

Current Status: As of early 2025, the bill is part of the legislative efforts to reform the banking sector to align with the “Viksit Bharat 2047” vision.

Objectives

To Improve Governance: Enhance the quality of oversight and administration in the Indian banking system.

Provide Better Protection for Investors and Depositors: Provide increased protections for people who deposit money with a bank.

Improve Operational Efficiency: Standardizing the period for submitting reports and conducting audits relative to current industry standards.

Align Cooperative Banking Regulations with Other Banking Laws: Enable banking regulation of cooperatives, thus providing stability and continuity in leadership.

Key Provisions

The bill introduces 19 total amendments across the five Acts. The most critical highlights include:

Customers may now nominate as many as four people for their account(s) using 1 of 2 nomination methods (Discrete (distributes funds based on percentages) or Continual (the first nominated person will receive their share of funds before others)); this allows for a more simplified and quicker transfer of assets from the account owner to legal heirs

The Revised Reporting Dates for the Statutory Reporting to RBI is now changing from “Every Friday “ to the last day of every fortnight, month or quarter to create consistency in Economic Data.

Directors will now have a longer tenure at Cooperatives and can serve for a maximum of Ten years instead of the previous Eight years (including the Chairperson). This aligns the Terms of Cooperative Directors with the Constitution which states that the Term shall be Five Years.

Additionally, the definition of Substantial Interest has also changed. There is now a higher Threshold for Shareholding that will be considered substantial interest. The previous Threshold was a Shareholding of ₹5 Lakhs; it has now increased to ₹2 Crores. This is due to inflation and the current Value of rupee, for which this change to be done was needed (i.e. the previous fixing of this was done in 1968).

For Auditor Remuneration, now Public Sector Banks will have the option to set the Auditor’s remuneration themselves. This will help Public Sector Banks to Widen their Search for Better Talent, as well as to determine how much they can afford to pay their Auditors, and to align Pay with Financial Capacity.

All Unclaimed Assets, including unclaimed dividends, unclaimed shares, and unclaimed interest will now be transferred to the IEPF after the end of Seven years. However, all individuals can still claim refunds should they so desire.

Finally, the Bill that will be passed will allow Directors of Central Cooperative Banks to serve on the Board of Directors of State Cooperative Banks. This will help create more Synergy between the District Level and the State Level for the Cooperative Credit Structure.

Policy Implications

Standardized liquidity: Fortnightly accounting has been introduced for liquidity calculations, therefore allowing future assessment of economic trends based upon cash balance.

Potential succession conflict: The inclusion of four nominee positions has created uncertainty in terms of who may inherit a financial institution in the event of the death or incapacity of the owner. Additionally, some suspect that these new banking regulations may have precedence over traditional state succession laws.

Federal structure concerns: There are concerns among critics that the expansion of tenure and the allowance for dual director positions on both Central Banks and State Boards of Cooperative Banks will create a concentration of power and diminish the independent nature of State Cooperative Banks.

Cybersecurity gaps: Although the bill deals primarily with the governance of cooperatives by the administrative agencies involved, there is a distinct absence of specific provisions that require the implementation of digital measures against cyber fraud, which is growing at an alarming rate.

Policy Recommendations

Streamlining Claim Procedures: When transferring money into IEPF, there should also be a simple process for the legal heirs of the deceased to claim their funds without excessive bureaucracy.

Cybersecurity Integration: Future legislation or amendment should include measures to prevent digital fraud, since the present-day losses associated with cybercrime are substantial.

Conflict of Interest Protections: Regulators must regulate the directors who sit on more than one cooperative board to ensure they do not have a vested interest in a way that alters the cooperative or credit service it provides.

Increase Credit Availability: Policies are needed to ensure that we offer student and agricultural loans the same flexibility as corporate loans as we improve the governance of all of these types of credit through increased transparency about CIBIL score and collateral requirements.

The transfer of assets to IEPF should also link to the UDGAM portal (Unclaimed Deposits – Gateway to Access inforMation), so individuals can search for shares/bonds that have been transferred when they are looking for unclaimed deposits.

Conclusion

The Banking Laws (Amendment) Bill is an important piece of legislation that reforms the Indian banking system by making it stronger and more secure than ever before. This law will also help make banking easier for consumers. The law will address many issues that have plagued this industry over time, including issues surrounding nominations and outdated thresholds for shareholding. To modernize the banking sector, such that it can compete globally as one of the top economies in the world, the Banking Laws (Amendment) Bill will help to achieve these goals. Nevertheless, how effectively the Banking Laws (Amendment) Bill will succeed in accomplishing its objectives will depend on how effectively the banking sector implements regulations, specifically regarding digital security and the safeguarding of money deposited by small depositors.

References

Report of the Standing Committee on Finance on The Banking Laws (Amendment) Bill – Lok Sabha Secretariat https://eparlib.sansad.in/bitstream/123456789/2982564/1/1499.pdf

Track Information on Bills (General/Banking Laws)- PRS Legislative Research https://prsindia.org/billtrack

Notifications (Master Directions/Amendments) – Reserve Bank of India (RBI) https://rbi.org.in/Scripts/NotificationUser.aspx

Press Releases (Ministry of Finance) – Press Information Bureau (PIB) https://www.pib.gov.in/allRel.aspx?reg=3&lang=1

Legislation / Bills Search – Digital Sansad (Lok Sabha Repository) https://sansad.in/ls/legislation/bills

The Gazette of India (Official Website) – Department of Publication, Ministry of Housing and Urban Affairs https://egazette.gov.in/(S(hobscdrybaxw4lp4agb5tic0))/default.aspx

About the author

Adiiti Aggarwal is a Master’s student in Economics at Shiv Nadar University, currently interning at the Jindal Policy Research Lab. She holds a Bachelor’s degree in Business Economics from the University of Delhi. Her research interests include development Economics, public policy, sustainable development, and governance.