On December 3, 2024, the Lok Sabha approved the Banking Laws (Amendment) Bill, 2024, introducing 19 significant amendments aimed at enhancing governance and bolstering investor protection within India’s banking sector.
Key Amendments and Their Implications
The Bill proposes several pivotal changes to existing banking regulations:
- Increased Nominee Allowance: Depositors can now designate up to four nominees for their bank accounts and fixed deposits, a substantial increase from the previous single-nominee system. This adjustment is designed to streamline the distribution of funds to beneficiaries upon the account holder’s demise, addressing challenges highlighted during the COVID-19 pandemic.
- Redefinition of ‘Substantial Interest’: The threshold for what constitutes a ‘substantial interest’ in a banking company has been elevated from ₹5 lakh to ₹2 crore. This revision, updating a figure unchanged for nearly six decades, aims to align with current economic realities and ensure more accurate representation in bank directorships.
- Extended Tenure for Cooperative Bank Directors: The permissible tenure for directors (excluding chairpersons and whole-time directors) in cooperative banks has been extended from eight to ten years. This change is intended to provide continuity and stability in the governance of cooperative banks.
- Transfer of Unclaimed Amounts to IEPF: The Bill broadens the scope of funds transferable to the Investor Education and Protection Fund (IEPF), now including unclaimed dividends, shares, and interest or redemption amounts for bonds that have remained unclaimed for seven years. This measure aims to safeguard investor interests and promote financial literacy.
Enhancements in Reporting and Audit Practices
To improve regulatory oversight and operational efficiency, the Bill introduces:
- Standardized Reporting Dates: Banks are now required to submit statutory reports to the Reserve Bank of India (RBI) on the 15th and the last day of each month, replacing the previous schedule of the second and fourth Fridays. This change seeks to provide consistency and clarity in regulatory reporting.
- Autonomy in Auditor Remuneration: Public sector banks are granted the discretion to determine the remuneration of their statutory auditors, a responsibility previously overseen by the RBI in consultation with the central government. This amendment is expected to enhance the quality of audits and strengthen governance standards.
Government’s Rationale and Opposition’s Response
Finance Minister Nirmala Sitharaman emphasized that these amendments are in line with the announcements made in the 2023-24 Budget, aiming to improve governance standards and provide better protection for depositors and investors.
However, the Bill faced criticism from opposition members. Congress MP Karti Chidambaram remarked that while the government had promised ‘majestic reforms’ in its 100-day agenda, the Bill falls short of such expectations.
Conclusion
The passage of the Banking Laws (Amendment) Bill, 2024, marks a significant step towards modernizing India’s banking sector. By addressing long-standing issues and introducing measures to enhance governance and investor protection, the government aims to foster a more resilient and transparent financial system. As these amendments come into effect, their impact on the banking landscape will be closely monitored by stakeholders across the industry.
