The Banking Laws (Amendment) Bill, 2024 which was passed in the Lok Sabha on December 3, 2024, introduces several critical changes to existing banking laws in India, aiming to modernize and streamline the banking sector. The law outlines several major reforms with the aim of bettering the governance of banks, increasing the protection afforded to investors as well as enhancing customer ease.
This Bill amends 5 major pieces of legislation that for the crux of banking regulations in India such as
- 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, 1970 and 1980.
| Sl. No. | Domain of Reform | Earlier Legislation | New Amendment | Departments/Businesses Impacted | Implementation | Timelines for Implementation | Risks/Benefits |
|---|---|---|---|---|---|---|---|
| 1 | Nomination Rules for Deposits and Lockers | Depositors (single and joint holder) could only appoint one nominee for their deposits and locker contents.
(Section 45ZA of the Banking Regulation Act 1949) |
Depositors can now appoint up to four nominees for both deposits and lockers, either successively or simultaneously. | Retail Banking, Customer Service, Legal, Technology, Communications, Marketing teams in Banks & Financial Institutions. | 1. Revise Account Opening and Locker Opening Documentation.
2. Amend Product documentation. 3. Update nomination forms in the Core Banking System and digital banking platforms to reflect new nominee structures. 4. Change in marketing materials – physical and online. 5. Communicate to customers about revised nomination structures for both locker and deposit accounts. |
Time taken to update systems to include the new nomination rules. RBI to be informed of the time taken for implementation. |
1. Operational complexity.
2. Legal conflicts. 3. Reflects savings and deposits as household savings. 4. Allows for a smooth settlement process after a depositor’s death. |
| 2 | Definition of “Fortnight” for Reporting | A “fortnight” was defined as the period from Saturday to the second following Friday, which often led to inconsistency and required special adjustments every 11 years.
(Section 42 of the Reserve Bank of India (RBI) Act 1934) |
The definition of a fortnight is now aligned with calendar months, the first period being from 1st to 15th, and the second from 16th to the end of the month. | Corporate Secretarial, all Businesses, Technology teams of Scheduled and Non-Scheduled Banks. | 1. Automated fortnightly reporting system.
2. Change in the Reporting Calendar. 3. Changes to timelines when information should be submitted by businesses. 4. Periodic risk assessments to ensure transparent reporting. |
Immediate | 1. Standardize the reporting system.
2. Reduces operational challenges in adjusting the internal reporting systems. |
| 3 | Increase in Minimum Paid-Up Capital | The minimum paid-up capital for banking companies was ₹5 lakh or 10% of paid-up capital, whichever is less.
(Section 5 of the Banking Regulation Act 1949) |
The amount is now increased to ₹2 crore or more, to reflect modern financial scales and inflation adjustments. | Credit Risk, Technology and Finance Teams of Banks
|
1. Strengthen Capital Planning Strategies
2. Assess current capital reserves and initiate necessary fundraising activities. 3. Revise regulatory compliance frameworks to ensure cash reserve ratio (CRR) and statutory liquidity ratio (SLR) reports. 4. Ensure robust liquidity monitoring. 5. Enhance treasury operations to efficiently manage statutory reserves. 6. Contingency liquidity plans |
Immediate | 1. Banks to have a stronger financial base
2. Establishes ability to handle operational challenges. 3. Smaller banks may face difficulty meeting the new capital requirements.
|
| 4 | Tenure of Directors in Cooperative Banks | The maximum tenure for directors (excluding chairpersons and whole-time directors) in cooperative banks was limited to 8 consecutive years.
(Section 10A of the Banking Regulation Act 1949) |
This tenure limit has been extended to 10 years to align with the 97th Amendment of the Constitution, which allows elected directors in cooperative societies to hold office for up to 5 years with no restrictions on re-election.
|
Company Secretarial, Legal, HR teams in Cooperative Banks.
|
1. Amendment to the Board Composition Policies
2. New Employment/ Directors’ Agreement incorporating the changes 3. Stronger performance evaluation mechanisms for directors serving extended terms.
|
Immediate | 1. Stability
2. Governance challenges
|
| 5 | Settlement of Unclaimed Amounts and Investor Education Protection Fund (IEPF) | Unclaimed dividends were transferred to the Unpaid Dividend Account after 7 years.
(Section 38A of the State Bank of India Act 1955) |
The Bill expands the scope of unclaimed amounts transferred to the IEPF to include:
(i)unpaid dividends for shares unclaimed for 7 years, and (ii)unpaid interest or redemption amounts on bonds for 7 years. |
Customer Service, Finance, Technology, Communication, Legal teams of Banks, financial institutions.
Retail Banking, Customer Service, Legal, Technology, Communications, Marketing teams in Banks & Financial Institutions.
|
1. Information to be widely circulated to investors through all marketing materials- physical and online to educate customers on unclaimed deposits, process of claiming,
2. Enhance customer outreach efforts to notify account holders about unclaimed funds before transfer deadlines. 3. Train customer service teams to assist in claiming unclaimed funds 4. Modify internal claims processing systems to ensure smooth implementation. 5. Strengthen tracking mechanisms for dormant accounts and unpaid financial assets. 6. Develop streamlined claims processes to help investors reclaim funds transferred to IEPF. |
Immediate | Process of managing the transfer of funds by the Banks and ensuring the Investors are thoroughly educated in this regard.
|
| 6 | Remuneration of Auditors | The Reserve Bank of India (RBI) prescribed the remuneration for auditors of banks.
(Section 41 of the State Bank of India Act 1955)
|
Banks will now determine the remuneration for auditors, giving them greater autonomy.
|
Audit, Vendor Management and Legal Department of banks and financial institutions.
|
1. Internal compliance to monitor auditor independence.
2.Establish independent audit committees 3. Transparent auditor selection process and rotation policies to prevent conflicts of interest. 4. Transparency in setting auditor fees to maintain credibility. |
Immediate | 1. Conflict of interest
2. Auditors may be incentivized to avoid reporting critical issues due to financial considerations.
|
| 7 | Prohibition of Common Directors in Cooperative Banks | Prohibited a director from serving on the board of another bank, except for those appointed by the RBI.
(Section 16 of the Banking Regulation Act 1949)
|
The Bill extends the exemption to include directors of central cooperative banks who may serve on the board of a state cooperative bank in which they are members.
|
Company Secretarial Team in Cooperative Banks
|
1. Amendment to the Board Composition Policies
2. New Employment/ Directors’ Agreement incorporating the changes 3. Stronger performance evaluation mechanisms for directors serving extended terms. 4. Internal compliance monitoring team to monitor boardroom directorships. |
Immediate | 1. Coordination between central and state cooperative banks, potentially improving decision-making and lending efficiency
2. Conflicts of interest.
|
It is pertinent to note that any noncompliance of these laws and regulations would result in varied consequences making immediate action critical for the organizations including:
- Regulatory penalties and reputational risks.
- Risk losing their banking licenses.
- Litigation risks from clients unaware of fund transfers.
- Regulatory scrutiny on financial disclosures and risk management is likely to increase, making compliance essential.
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