Lok Sabha passes banking laws amendment bill, focus on improving bank governance

In a bid to improve bank governance and enhance investor protection, the government on Tuesday passed an amendment bill in the Lok Sabha that brings about changes to five banking laws.

Finance minister Nirmala Sitharaman said the Banking Laws (Amendment) Bill will strength bank governance, provide consistency in reporting by banks to the Reserve Bank of Bank of India, ensure better protection for depositors and also for investors, improve audit quality in public sector banks, and also increase the tenure of directors other than the chairperson and full-time directors in cooperative banks.

The minister said that through the bill a total of 19 amendments were being undertaken to bring changes in the Reserve Bank of India Act, 1934 (one amendment), the Banking Regulation Act, 1949 (12 amendments), the State Bank of India Act, 1955 (2 amendments), the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (2 amendments) and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1978 (2 amendments).

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Among the major changes proposed through the bill are amendments to the Banking Regulation Act that will allow bank account holders to have up to four nominees in his/her account.

“This includes provisions for simultaneous and successive nominations, offering of greater flexibility and convenience for depositors and their legal aids, especially concerning deposits, articles in safe custody,” Sitharaman said.

The bill also seeks to transfer unclaimed dividends, shares and interest or redemption of bonds to the Investor Education and Protection Fund (IEPF), allowing individuals to claim transfers or refunds from the fund, thus safeguarding investors’ interests.

The bill also seeks to transfer unclaimed dividends, shares, and interest or redemption of bonds to the Investor Education and Protection Fund (IEPF), allowing individuals to claim transfers or refunds from the fund, thus safeguarding investors’ interests.

The proposed changes in banking laws also revises the reporting dates for the submission of statutory reports by banks to the Reserve Bank of India from reporting every Friday to the last day of the fortnight, month or the quarter.

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“So this change will ensure consistency in reporting and that will make it easier for even those who want to observe the Indian economy or the way in which banks follow statutory reporting,” said the finance minister.

Another proposed change relates to redefining ‘substantial interest’ for directorships, which could increase to ₹2 crore instead of the current limit of ₹5 lakh, which was fixed almost six decades ago.

With regard to cooperatives operating in the banking space, Sitharaman said the amendments in the Banking Regulations Act would apply only to cooperative banks or that part of the cooperatives which are operating as banks.

The bill proposes to increase the tenure of directors (excluding the chairman and whole-time director) in cooperative banks from 8 years to 10 years, so as to align with the Constitution (97th Amendment) Act, 2011.

Once passed, the bill would allow a director of a Central Cooperative Bank to serve on the board of a State Cooperative Bank, Sitaraman said.

The bill also seeks to give greater freedom to banks in deciding the remuneration to be paid to statutory auditors.

Replying to the debate on the bill, Sitaraman said that since 2014, the government has been extremely cautious, so that banks remain stable. “The intention is to keep our banks safe, stable, healthy, and after 10 years you are seeing the outcome,” she said observing that banks are being professionally run today.

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“The metrics are healthy so they can go to the market and raise bonds, raise loans and run their business accordingly,” she said.

The number of bank branches of scheduled commercial banks have increased by 3,792 in a year to reach 1.65 million in September 20024. Out of this 85,116 branches are of public sector banks, she added.

The proposal to amend the Banking Regulation Act was made by the finance minister in the 2023-24 budget speech. In fact the bill was first introduced on 9 August, 2024 but could not be taken up for discussion and passage then.