Here's All About Banking Laws (Amendment) Bill 2024, Moved By Finance Minister Nirmala Sitharaman In Lok Sabha

Union Finance Minister Nirmala Sitharaman moved the Banking Laws (Amendment) Bill 2024, in the Lok Sabha for consideration and passage on Tuesday (3 December).

"The proposed amendments will strengthen governance in the banking sector and enhance customer convenience with respect to nomination and protection of investors," Sitharaman said while moving the bill.

The bill proposes amendments to several key legislations, including 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. It aims to modernise India’s banking laws, enhance governance, and improve regulatory oversight in the banking sector.

One of the key features of this bill it that it addresses governance in co-operative banks by extending the tenure of directors from the current eight years to 10 years, ensuring stability in leadership.

Additionally, the restriction on common directors in co-operative banks is eased, allowing directors of central co-operative banks to serve on the boards of state co-operative banks where they hold membership. This move aims to strengthen coordination and governance within the co-operative banking ecosystem.

One of the other key changes proposed is the redefinition of a “fortnight” used to calculate cash reserves maintained by banks. The current definition, spanning from Saturday to the second following Friday, will be replaced with a bi-monthly cycle from the 1st to the 15th and the 16th to the last day of the month.

This change simplifies financial reporting and aligns reserve calculations with monthly accounting practices, reducing complexity for both scheduled and non-scheduled banks.

Significant relaxation is proposed in the definition of “substantial interest” in a company, increasing the shareholding threshold from Rs 5 lakh or 10 per cent of paid-up capital to Rs 2 crore. This amendment is expected to encourage larger investments and provide greater flexibility for stakeholders in banking-related enterprises.

Another notable reform is the provision for appointing up to four nominees for deposits, lockers, or other banking services. Customers will have the option to assign nominees either simultaneously or successively, facilitating smoother succession planning and greater clarity in asset distribution.

The bill also expands the scope of unclaimed funds that can be transferred to the Investor Education and Protection Fund (IEPF), ensuring transparency and enabling claimants to retrieve unclaimed assets.

Empowering banks to decide the remuneration of their auditors, a shift from the current practice where the Reserve Bank of India (RBI) consults with the central government, is another critical amendment which is part of this bill. This step aims to enhance operational autonomy and streamline administrative processes.

The announcement of amending the Banking Regulation Act was made by the Finance Minister in the budget speech of 2023-24.