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The Banking Laws (Amendment) Bill, 2024 has been passed in the Lok Sabha. The bill aims to improve governance in the banking sector and enhance customer convenience, Finance Minister Nirmala Sitharaman stated while presenting the bill for consideration and passing in the Lok Sabha on Tuesday. You can download Bill PDF from link below.
Proposed Amendments and Objectives
The bill introduces 19 key amendments to existing legislation, including:
- Reserve Bank of India Act, 1934
- Banking Regulation Act, 1949
- State Bank of India Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980
These amendments aim to:
- Strengthen governance in the banking sector.
- Improve investor protection mechanisms.
- Enhance customer convenience, particularly regarding account nominations.
Key Provisions in the Bill
Enhanced Nomination Flexibility
The bill allows account holders to nominate up to four individuals for their accounts, giving customers greater flexibility and clarity in managing their finances.
Investor Education and Protection Fund (IEPF)
The bill mandates the transfer of unclaimed dividends, shares, and bond interests or redemptions to the IEPF. This provision ensures that individuals can claim or request refunds from the fund, safeguarding investors’ interests and promoting accountability.
Redefinition of ‘Substantial Interest’
The definition of ‘substantial interest’ for directorships will be revised. The monetary limit is proposed to increase from ₹5 lakh to ₹2 crore, reflecting the current economic scenario and the evolution of the banking industry over the past six decades.
Cooperative Banking Amendments
- The amendments to the Banking Regulation Act will apply exclusively to cooperative banks or the banking arms of cooperative societies.
- The tenure of directors (excluding chairpersons and whole-time directors) in cooperative banks will increase from 8 to 10 years, aligning with the Constitution (Ninety-Seventh Amendment) Act, 2011.
- Directors of Central Cooperative Banks will be allowed to serve on the boards of State Cooperative Banks.
Improved Governance Standards
The bill emphasizes better reporting consistency and governance through the following:
- Regulatory Compliance: Banks will now submit reports on the 15th and last day of every month, replacing the previous system of second and fourth Fridays.
- Statutory Auditor Remuneration: Banks will have greater discretion in deciding auditor remuneration, ensuring a balance between regulatory oversight and operational autonomy.
- Audit Quality: A focus on enhancing the audit process within public sector banks to bolster accountability and transparency.
Rationale Behind the Amendments
The evolving banking sector demands regular updates to governance structures and customer-centric policies. According to the bill’s statement of Objects and Reasons, these amendments are necessary to:
- Ensure robust governance and investor protection.
- Standardize reporting protocols to the Reserve Bank of India (RBI).
- Protect depositors and enhance transparency.
Conclusion
Once enacted, the Banking Laws (Amendment) Bill, 2024, will mark a significant step toward modernizing the banking sector. By introducing customer-friendly measures, redefining governance frameworks, and ensuring investor safety, the bill aligns the sector with contemporary economic needs and global best practices.
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