Banking Laws Amendment Bill, 2024: A Progressive Overhaul in Indian Banking Regulations

By Rupin Chopra and Shantam Sharma

The Banking Laws Amendment Bill, 2024[1], introduced on December 3, 2024, marks a significant milestone in the modernization of India’s banking framework. By amending 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, the Bill aims to improve governance, enhance investor protection, and align banking practices with contemporary economic realities.

Comparisons with the Old Framework

To better understand the transformative impact of these amendments, let’s compare the old and new regulations:

 

Key Features of the Amendment Bill

1. Nomination Flexibility
   The Bill introduces a much-needed change in how nominations are handled in banking. Earlier, deposit holders and locker users could appoint only a single nominee for their assets. The new provisions allow up to four nominees, offering greater flexibility. For deposits, nominations can be appointed either simultaneously (with specified proportions) or successively. However, in the case of lockers, only successive nominations are allowed.

   This change is particularly beneficial for deposit holders, as it ensures smoother estate planning and better distribution of assets in unforeseen circumstances.

2. Redefining “Substantial Interest”
   The threshold for defining “substantial interest” in a banking company has been revised to keep pace with the evolving economy. Previously, holding shares worth more than ₹5 lakh or 10% of a company’s paid-up capital qualified as substantial interest. The new threshold has been increased to ₹2 crore, reflecting inflation and the current scale of economic activities.

   This change is expected to attract higher-value investors and ensure a modernized regulatory framework for governance.

3. Extended Tenure for Cooperative Bank Directors
   Under the earlier provisions, directors in cooperative banks were limited to a maximum of eight consecutive years. The Bill extends this tenure to ten years, aligning with the Constitutional Act of 2011, which governs cooperative societies.

   This revision enhances stability in leadership, enabling directors to carry forward long-term initiatives and ensure sustained growth in cooperative banks.

4. Unified Directorship in Cooperative Banks
   The previous law prohibited directors of one cooperative bank from serving on the board of another. The amendment now allows directors of central cooperative banks to simultaneously serve on the boards of state cooperative banks, provided they are members of the latter.

   This change is expected to improve coordination between central and state cooperative banks, strengthening the cooperative banking ecosystem.

5. Auditor Remuneration Flexibility
   Earlier, the Reserve Bank of India (RBI), in consultation with the central government, regulated the remuneration for statutory auditors of banks. The Bill now grants banks the authority to decide the remuneration of their auditors independently.

   This provides banks with greater autonomy and allows for competitive hiring of auditors, ensuring improved audit quality.

6. Simplified Cash Reserve Period
   The definition of “fortnight,” a critical period used for calculating cash reserves that banks must maintain, has been updated for simplicity. Previously, a fortnight was defined as the period from Saturday to the second following Friday. Under the new law, a fortnight is redefined as either:
   1. The 1st to the 15th day of the month, or
   2. The 16th to the last day of the month.

   This new definition streamlines reporting and aligns it with standard calendar intervals, simplifying compliance requirements for banks.

7. Revised Reporting Schedule
   Another practical change is in the timeline for filing regulatory reports and complaints. Previously, banks had to submit these reports on the second and fourth Fridays of each month. The Bill standardizes the reporting dates to the 15th and last day of each month, providing consistency and reducing ambiguity.
8. Expanding the Scope of Unclaimed Funds
   The Bill enhances depositor and investor protection by expanding the scope of funds transferred to the Investor Education and Protection Fund (IEPF). Earlier, only unpaid dividends were eligible for transfer. Now, the following are included:
   • Shares for which dividends have not been claimed for seven consecutive years.
   • Unclaimed interest or redemption amounts on bonds after seven years.

   Depositors and investors will still have the right to claim their unclaimed money or shares from the IEPF, ensuring transparency and accountability.

Conclusion

The Banking Laws Amendment Bill, 2024, is a progressive step toward creating a modern, resilient banking system in India. By addressing outdated provisions and introducing customer-friendly reforms, the Bill sets the stage for enhanced governance, operational efficiency, and stakeholder trust in the banking sector.

[1] Available at- https://sansad.in/getFile/BillsTexts/LSBillTexts/Asintroduced/banking89202450403PM.pdf?source=legislation