The Banking Laws (Amendment) Bill, 2024 ("Bill") was introduced in the Lok Sabha on August 9, 2024, and passed on December 3, 2024. Its primary aim is to modernize India's banking system by making changes to five key laws:
· Reserve Bank of India Act, 1934 ("RBI Act")
· Banking Regulation Act, 1949 ("Banking Act")
· State Bank of India Act, 1955
· Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
· Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
This C&M alert provides an overview of the proposed changes and analyses their potential impact.
KEY AMENDMENTS |
The "substantial interest" requirement
Under the current Banking Act, an individual, along with their spouse or minor child, is considered to hold "substantial interest" in a banking company if their combined interest exceeds a certain threshold.
The Bill proposes increasing this threshold from INR 5,00,000 (five lakhs) to INR 2,00,00,000 (two crores), or 10% of the paid-up capital, whichever is lower. This change will make it easier for more individuals to be eligible for directorships in banking companies.
Provided a substantial interest is a beneficial interest in a company or firm that exceeds a certain amount.
New nomination rule for bank lockers, and deposits
Currently, the Banking Act allows single or joint deposit holders to appoint a nominee for their deposit.
New rules allow the appointment of up to four nominees for bank lockers and deposits. The nominee who has been named higher in the order of nomination will receive priority.
The rising number of unclaimed deposits in banks, has prompted these changes. The aim is to reduce unclaimed funds by simplifying the transfer process.
Directorships in central cooperative banks
The Bill proposes to permit a director of a central co-operative bank to also serve on the board of a state cooperative bank. This change enables such directors to actively participate in the decision-making processes at both, central and state levels.
Additionally, the 2024 Bill extends the permissible consecutive tenure for directors in co-operative banks (excluding chairpersons or whole-time directors) from 8 years to 10 years.
Redefining Reporting Dates
The Bill amends Section 42 of the RBI Act, which governs the Cash Reserve Ratio (CRR) that scheduled banks maintain with the RBI. Currently, banks calculate the average daily balance on a fortnightly basis, using a 14-day cycle that starts from Saturday to the second Friday. The proposed change redefines a fortnight to mean the 1st to the 15th or the 16th to the last day of each month.
This adjustment will bring uniformity by setting fixed calendar dates for the calculation period. The new rule will apply to both scheduled and non-scheduled banks.
Remuneration of auditors
The Bill empowers banks to decide the remuneration of their auditors, a responsibility which was previously held by the RBI in consultation with the central government. The Bill empowers banks to decide the remuneration of their auditors.
Settlement of Unclaimed Amounts
Currently, banking laws require unpaid or unclaimed dividends to be moved to an unpaid dividend account. If the funds in this account remain unclaimed for 7 years, they are transferred to the Investor Education and Protection Fund (IEPF). The Bill broadens the types of funds that can be transferred to the IEPF. It now includes:
(a) shares for which dividends have not been paid or claimed for 7 years, and
(b) unpaid or unclaimed interest or redemption amounts for bonds that remain unclaimed for 7 years.
CONCLUSION |
The bill has been widely welcomed as it introduces customer-focused changes, such as an improved nomination system and simplified reporting requirements. It also makes necessary amendments to update India's banking laws to meet modern needs and address future challenges. However, some aspects require further attention. For instance, with multiple nominees, decision-making might become more complex, as the signatures of all nominees would be required for asset transfer, potentially leading to operational challenges.
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