The Banking Laws (Amendment) Bill 2024 is set to bring significant changes to India’s banking system. Introduced by Union Finance Minister Nirmala Sitharaman on December 2, 2024, the bill aims to amend crucial banking laws like the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, and others. These amendments are expected to strengthen the regulatory framework and improve the overall functioning of the banking sector in India. Let’s break down the key amendments and their expected impacts.
Key Amendments in the Banking Laws (Amendment) Bill 2024
1. Definition of Fortnight for Cash Reserves
Current Definition:
Under the RBI Act, a “fortnight” is defined as the period from Saturday to the second Friday following it (inclusive).
Proposed Amendment:
The bill proposes a new definition of a “fortnight” as:
- 1st day to the 15th day of each month.
- 16th day to the last day of each month.
Impact:
This change will affect how banks calculate their average daily balance for cash reserves, both for scheduled and non-scheduled banks. It is expected to bring more clarity in the calculation process and allow better management of banking resources.
2. Tenure of Directors of Co-operative Banks
Current Rule:
Directors of co-operative banks (except for chairmen and whole-time directors) are restricted to a maximum tenure of 8 consecutive years.
Proposed Amendment:
The bill extends the tenure of directors to 10 consecutive years.
Impact:
This amendment is designed to provide greater stability in the governance of co-operative banks. It allows experienced directors to stay longer, which can improve decision-making and ensure continuity in the bank’s operations.
3. Prohibition on Common Directors in Co-operative Banks
Current Rule:
The Banking Regulation Act currently prohibits directors from serving on the boards of multiple banks, with exceptions for RBI-appointed directors.
Proposed Amendment:
The bill will allow directors of central co-operative banks to also serve on the board of a state co-operative bank in which they are members.
Impact:
This change will enhance coordination between different layers of the co-operative banking system and improve the leadership structure.
4. Substantial Interest in a Company
Current Rule:
Under the Banking Regulation Act, an individual or family is considered to have “substantial interest” in a bank if they hold shares worth more than ₹5 lakh or 10% of the paid-up capital.
Proposed Amendment:
The bill increases this threshold to ₹2 crore.
Impact:
The amendment allows larger investors and corporate entities to hold a larger stake in banks before it is considered “substantial.” This will attract more investments and provide banks with additional capital for growth and expansion.
5. Nomination for Deposits and Bank Products
Current Rule:
Currently, a depositor can only appoint one nominee for their deposits or bank products.
Proposed Amendment:
The bill allows depositors to nominate up to four individuals, either simultaneously or successively.
Impact:
This change will make it easier for families to divide and distribute assets. It ensures a smoother transfer of assets when multiple nominees are involved.
6. Settlement of Unclaimed Amounts
Current Rule:
Unclaimed dividends, after seven years, are moved to the Investor Education and Protection Fund (IEPF) under the State Bank of India Act and the Banking Companies Acts of 1970 and 1980.
Proposed Amendment:
The bill widens the scope to include unclaimed shares, interest, and redemption amounts for bonds that remain unpaid for seven consecutive years.
Impact:
This provision will help individuals claim unclaimed funds, contributing to financial transparency and providing relief to people who have outstanding claims with banks.
7. Remuneration of Auditors
Current Rule:
The RBI currently decides the remuneration of auditors in consultation with the central government.
Proposed Amendment:
The bill allows banks to decide the remuneration for auditors independently.
Impact:
This change simplifies the auditing process by reducing bureaucratic involvement and giving banks more autonomy in managing their auditing functions.
Key Amendments in the Banking Laws (Amendment) Bill 2024
| Amendment | Current Rule | Proposed Amendment | Impact |
| Definition of Fortnight | Saturday to the second following Friday | 1st to 15th and 16th to last day of each month | Improved clarity in cash reserve calculations |
| Tenure of Co-operative Bank Directors | Maximum tenure of 8 years | Increased tenure to 10 years | Enhanced stability in governance |
| Common Directors in Co-operative Banks | Directors cannot serve on multiple bank boards | Directors of central co-op banks can serve on state co-op bank boards | Better coordination in the co-operative banking system |
| Substantial Interest in a Company | ₹5 lakh or 10% of paid-up capital | Increased threshold to ₹2 crore | Attract more investments in the banking sector |
| Nomination for Deposits | One nominee allowed | Up to four nominees allowed | Easier distribution of assets |
| Settlement of Unclaimed Amounts | Unclaimed dividends moved to IEPF after 7 years | Unclaimed shares, interest, and bonds can also be moved to IEPF | Greater financial transparency |
| Remuneration of Auditors | Decided by RBI in consultation with government | Banks to decide auditor remuneration independently | Streamlined auditing process |
Related Events and Impact on the Banking Sector
The Banking Laws (Amendment) Bill 2024 is a part of India’s broader efforts to modernize and streamline the banking sector. These reforms come on the heels of other initiatives, such as the National Bank for Financing Infrastructure and Development Bill, which aims to improve financial support for infrastructure development.
Together, these initiatives are expected to foster a more transparent, efficient, and investor-friendly banking system.
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FAQs on Banking Laws (Amendment) Bill 2024
The Banking Laws (Amendment) Bill 2024 aims to make significant changes to several key banking regulations, improving governance and streamlining processes in the banking sector
The bill proposes changes such as redefining a “fortnight” for cash reserves, extending the tenure of co-operative bank directors, and allowing multiple nominees for bank deposits.
The amendments will enhance regulatory clarity, improve governance, and attract more investment in the banking sector. They will also provide greater transparency in the management of unclaimed assets.
The amendments will allow co-operative bank directors to serve longer tenures and facilitate better coordination between central and state co-operative banks.
Raising the threshold for “substantial interest” to ₹2 crore allows larger investors to hold a bigger stake in banks, promoting more capital investment in the sector.
The new provision allowing up to four nominees will make it easier for depositors to distribute their assets among family members, offering greater flexibility in estate planning.
The bill will promote financial transparency, simplify the auditing process, and ensure smoother settlement of unclaimed funds, benefiting individuals and the overall banking sector.