The Banking Laws (Amendment) Bill, 2024, introduced in the Lok Sabha on August 9, 2024, proposes significant changes to several key banking laws. Specifically, the Bill amends the following Acts:
- Reserve Bank of India (RBI) Act, 1934
- Banking Regulation Act, 1949
- State Bank of India Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
The amendments aim to modernize the regulatory framework for India’s banking sector, improve governance, and enhance operational efficiencies. The significant provisions of the Bill are:
Definition of Fortnight for Cash Reserves in Banking Laws
Under the RBI Act, scheduled banks are required to maintain a prescribed level of cash reserves with the RBI, calculated as an average daily balance for each fortnight. Currently, a fortnight is defined as the period from Saturday to the second following Friday. The Bill modifies this definition to a monthly structure, specifying that a fortnight will now refer to either:
- 1st to 15th day of each month, or
- 16th to the last day of each month.
This change is mirrored in the Banking Regulation Act, which applies to non-scheduled banks.
Tenure of Directors in Co-operative Banks
The Banking Regulation Act imposes a limit on the tenure of directors in banks (other than the chairman or whole-time directors), capping it at eight consecutive years. The Bill seeks to extend this period to ten years specifically for directors of co-operative banks.
Prohibition on Common Directors in Co-operative Banks
Currently, the Banking Regulation Act prohibits a director of one bank from simultaneously serving on the board of another, with an exemption for directors appointed by the RBI. The Bill expands this exemption to include directors of central co-operative banks, allowing them to also serve on the board of a state co-operative bank, provided they are a member of that bank.
Substantial Interest in a Company in Banking Laws
The Banking Regulation Act defines “substantial interest” in a company as holding shares worth more than ₹5 lakh or 10% of the paid-up capital, whichever is lower, either individually or collectively with a spouse or minor child. The Bill increases this threshold to ₹2 crore, with the central government retaining the authority to modify this limit through a notification.
Nomination for Bank Deposits and Assets
Under the Banking Regulation Act, individuals can nominate a person to receive their bank deposits or items held in custody (including lockers) upon their death. The Bill expands this provision by allowing depositors to appoint up to four nominees. Nominees can be appointed either successively or simultaneously, and in cases of simultaneous nominations, the distribution of assets will be as per the declared proportions. Successive nominations will prioritize the nominee listed first.
Settlement of Unclaimed Amounts in Banking Laws
The State Bank of India Act and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 currently mandate the transfer of unclaimed dividends to an unpaid dividend account. If these amounts remain unclaimed for seven years, they are transferred to the Investor Education and Protection Fund (IEPF). The Bill broadens the scope of this provision to include:
- Shares on which dividends have remained unclaimed for seven consecutive years
- Unpaid or unclaimed interest or redemption amounts for bonds after seven years.
Individuals whose unclaimed amounts are transferred to the IEPF can claim a refund or transfer.
Remuneration of Auditors
Currently, the remuneration for bank auditors is determined by the RBI in consultation with the central government. The Bill gives banks the autonomy to set the remuneration for their auditors directly.
Conclusion
The Banking Laws (Amendment) Bill, 2024 introduces several progressive changes aimed at strengthening the banking sector’s operational framework, improving governance, and enhancing transparency. These amendments are expected to have a lasting impact on the way banks function, offering greater flexibility while ensuring stricter oversight and protection of stakeholders’ interests.
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