BL Explainer: How the amended Banking Laws impact you
Parliament on Tuesday passed the Banking Laws (Amendment) Bill, 2024, which proposes 19 amendments to banking laws, including the Reserve Bank of India Act, Banking Regulation Act, State Bank of India Act, and Banking Companies (Acquisition and Transfer of Undertakings) Act. The Bill piloted by Union Finance Minister Nirmala Sitharaman has addressed crucial legacy issues, and was approved by the Lok Sabha by a voice vote. Businessline takes a look at the new laws and its impact on banks and customers.
What is the key amendment under the bill?
Replacing the current system wherein bank depositors can only have one nominee for their bank accounts, the bill enables depositors to nominate up to four individuals for their bank accounts or fixed deposits. The move is expected to enhance customer convenience and address the unclaimed deposits issue. Unclaimed deposits with banks have witnessed a 26 per cent jump year-on-year to ₹78,213 crore at the end of March 2024, according to an RBI Annual Report
“Changes in nomination mechanism offers flexibility to depositors and avoids disputes and litigation, which usually occur after death of the depositor. Provision of simultaneous and successive nomination echoes principles in personal laws and provide more flexibility to the depositor, especially in large-value deposits,” said Mukesh Chand, Senior Counsel at Economic Laws Practice
What are the proposed changes for directorships?
The bill redefines “substantial interest” for bank directorships by raising the threshold from Rs 5 lakh to Rs 2 crore, a figure reportedly unchanged for nearly six decades. Satyadarshi Kunal, Partner at Saraf and Partners, says provision allowing multiple nominees for bank accounts and the redefinition of ‘substantial interest’ thresholds represent significant advancements in governance and customer protection.
“These measures are designed to simplify the process of fund distribution and align directorship thresholds with current economic realities, thereby enhancing the overall efficiency and transparency of banking operations,” he said.
What are the changes in the urban co-operative banks space?
The bill proposes to increase the tenure of directors (excluding the chairman and whole-time director) in co-operative banks from 8 years to 10 years, so as to align with the Constitution (Ninety-Seventh Amendment) Act, 2011. Once passed by the upper house, the bill would allow a director of a Central Co-operative Bank to serve on the board of a State Cooperative Bank. Separately, the Bill also seeks to give greater freedom to banks in deciding the remuneration to be paid to statutory auditors
It also seeks to redefine the reporting dates for banks for regulatory compliance to the 15th and last day of every month, instead of the second and fourth Fridays. “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 for consideration and passing.
What will the impact of proposed amendments be?
According to Chand, while the proposed amendments to the Banking Regulation Act are not substantive in nature, it reflects an effort to align the regulatory framework with contemporary practices, economic realities, and existing legal frameworks. For example, shift in reporting aligns compliance timelines with standard financial reporting cycles. Mandating the transfer of unclaimed assets to the Investor Education and Protection Fund also addresses a longstanding issue.
“Thus, while not revolutionary, the amendment aims to refine and align existing processes, creating a more cohesive and operationally efficient regulatory environment,” he said.