Issued: April 2025
The Banking Laws (Amendment) Bill, 2024 is a legislative measure that proposes key changes to several foundational statutes governing India’s banking and cooperative financial institutions. These include amendments to:
- The Reserve Bank of India Act, 1934
- The Banking Regulation Act, 1949
- The State Bank of India Act, 1955
- The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980
The overarching goal of the Bill is to strengthen depositor rights, rationalize outdated regulatory definitions, improve the governance framework of cooperative banks, enhance transparency in asset management, and increase operational autonomy for banking institutions across India. This reform-oriented legislation reflects the government’s effort to modernize India’s banking ecosystem in line with evolving economic dynamics and global standards.
1. Provision for Multiple Nominations in Bank Deposits and Lockers
One of the most progressive changes proposed under the Bill is the ability for depositors to appoint multiple nominees for bank accounts, fixed deposits, and safe deposit lockers. Currently, most banks permit only a single nominee, often leading to confusion or disputes among legal heirs in the absence of a comprehensive will or succession plan.
Under the new provision, a depositor can name up to four nominees, with the choice to either allocate a fixed percentage share to each nominee (simultaneous nomination) or list them in an order of priority (successive nomination). The simultaneous model ensures proportional distribution of funds, while the successive model offers an alternative wherein the nominee next in line inherits the asset only if the previous nominee is deceased or disqualified.
This provision is expected to reduce post-mortem litigation, expedite claim settlements, and enhance the ease of financial asset transfers to families and beneficiaries - even in a country where many depositors die intestate.
2. Revision of the Definition of ‘Substantial Interest’
The Bill proposes a substantial increase in the monetary threshold that defines ‘substantial interest’ in a company. The previous benchmark, which was fixed at ₹5 lakh, is raised to ₹2 crore under the amended framework. This update is intended to better reflect present-day corporate structures, inflation-adjusted asset sizes, and capital market valuations.
The term ‘substantial interest’ is a crucial determinant in regulatory provisions related to conflict of interest, exposure norms, and related-party transactions within banks. By revising this definition, the amendment ensures that the regulatory net focuses on genuinely material holdings, rather than capturing minor investors or stakeholders who may not wield significant influence in corporate decisions.
This change is aligned with the Reserve Bank of India’s ongoing efforts to streamline governance norms and tailor oversight frameworks in accordance with economic scale and evolving market practices.
3. Changes in Tenure of Co-operative Bank Directors
Co-operative banks in India, particularly urban and rural cooperative institutions, are vital conduits for financial inclusion and localized credit delivery. The Bill proposes to enhance the consecutive tenure of directors on the board of such banks (excluding full-time chairpersons and managing directors) from the existing eight years to ten years.
This change draws from the framework laid out in the 97th Constitutional Amendment, which emphasized democratic functioning and continuity in cooperative societies. By allowing a longer tenure, the reform aims to provide greater leadership stability, reduce political churn, and encourage long-term institutional planning. It also offers an incentive for experienced board members to continue contributing to the governance of these critical financial intermediaries, especially in semi-urban and rural areas.
4. Allowing Dual Board Membership in Co-operative Banks
The Bill also introduces a provision to allow a director of a central co-operative bank to serve concurrently on the board of a state co-operative bank, provided they are a member of both institutions. This reform is expected to improve the coordination, communication, and strategic alignment between various tiers of the cooperative banking structure.
The cooperative banking sector often struggles with fragmented oversight and misaligned policy execution between central and state-level banks. This measure enables better policy coherence, ensures smoother implementation of cooperative reforms, and enhances the representational voice of member banks in upper-tier decision-making forums.
By encouraging integrated governance, this change facilitates a more unified approach to managing risks, improving credit quality, and promoting financial health across the cooperative banking landscape.
5. Redefinition of ‘Fortnight’ for Regulatory Reporting
Under the current system, the calculation of the Cash Reserve Ratio (CRR) and other reporting metrics is based on a fortnight defined from Saturday to the second following Friday. The amendment redefines this term in line with the standard financial reporting cycle, wherein each month is divided into two fixed parts:
- From the 1st to the 15th of the month
- From the 16th to the last calendar day of the month
This redefinition is aimed at aligning Indian banking regulation with global best practices, bringing predictability and consistency to banks’ internal accounting and Reserve Bank reporting obligations. Moreover, this change is likely to assist in improved macroeconomic tracking by allowing regulators to harmonize monetary and liquidity data across reporting periods.
6. Transfer of Unclaimed Funds to the Investor Education and Protection Fund (IEPF)
Another critical provision is the automatic transfer of unclaimed financial instruments—such as unpaid dividends, interest on bonds, and redemption proceeds—to the Investor Education and Protection Fund (IEPF) after seven years of inactivity. The IEPF is a statutory body under the Ministry of Corporate Affairs, tasked with managing dormant investor assets and promoting financial literacy.
While the assets will be transferred to IEPF, the rightful owners or their legal heirs can file claims and receive refunds through a defined procedure. This model strikes a balance between protecting long-forgotten investor assets from misuse and making them available for productive awareness initiatives until they are claimed.
This provision enhances accountability for financial institutions in maintaining clean books and ensures better governance of idle capital within the banking system.
7. Autonomy for Banks in Auditor Remuneration
Under the previous framework, the remuneration of auditors appointed by public sector banks was determined by the Reserve Bank of India in consultation with the Central Government. The amendment transfers this responsibility directly to the banks, allowing them to fix their own auditor compensation.
This shift is aligned with corporate governance reforms that advocate for decentralization, accountability, and financial autonomy. With banks bearing full responsibility for ensuring audit quality and oversight, the change promotes greater ownership in financial reporting processes while maintaining regulatory compliance.
This is also expected to expedite appointment procedures, improve transparency in audit contracts, and foster a more competitive professional environment for auditors engaging with large banking clients.
Legislative Timeline
| Milestone | Date |
|---|---|
| Introduced in Lok Sabha | August 9, 2024 |
| Passed by Lok Sabha | December 3, 2024 |
| Passed by Rajya Sabha | March 26, 2025 |
| Final Approval (Lok Sabha) | April 2, 2025 |
| Presidential Assent | Pending (as of April 2025) |
The Banking Laws (Amendment) Bill, 2024 signals a mature and timely shift in India’s banking regulatory landscape. By introducing thoughtful reforms across nomination rights, financial governance, auditor autonomy, and cooperative bank coordination, the legislation attempts to strike a balance between administrative freedom and regulatory integrity.
These reforms are expected to streamline internal processes, minimize legal and operational disputes, and empower institutions to adapt more responsively to changing customer and market expectations. As the Bill awaits Presidential assent, its potential implementation marks a forward-looking milestone in India’s journey toward a more modern, transparent, and inclusive banking system.
We welcome input from legal experts, banking professionals, cooperative members, auditors, and consumers. What are your views on the proposed changes? Do these reforms address longstanding challenges in the sector?