Context:
The Ministry of Finance has notified the Banking Laws (Amendment) Act, 2025, bringing into force comprehensive changes across five key banking legislations to modernize governance, improve transparency, and enhance depositor safety.
What Is the Act?
A reform legislation amending multiple banking laws, including those governing:
- Public Sector Banks (PSBs)
- Cooperative Banks
- Banking Regulation Act
- Banking Companies (Acquisition and Transfer of Undertakings) Acts
- Depositor protection mechanisms
Objectives of the Act
- Strengthen governance in public and cooperative banks
- Improve audit standards and transparency
- Protect interests of depositors and investors
- Modernize outdated thresholds and processes in bank regulation
Key Features of the Amendment Act
Redefinition of ‘Substantial Interest’
- The threshold for “substantial interest” in banks revised from ₹5 lakh to ₹2 crore.
- Adjusts for inflation and sectoral expansion since 1968.
Cooperative Bank Governance Reform:
- Director tenure extended to 10 years (from 8 years), except for chairperson and full-time directors.
- Aligned with the 97th Constitutional Amendment, ensuring more democratic functioning.
Unclaimed Assets to IEPF:
- Public Sector Banks can now transfer unclaimed shares, interests, bond redemptions to the Investor Education and Protection Fund (IEPF).
- Harmonizes norms with those under the Companies Act.
Audit Transparency and Autonomy:
- PSBs can determine statutory auditor remuneration, enabling hiring of high-quality audit firms.
- Aims to enhance audit independence and professional standards.
Rationalized Statutory Reporting:
- RBI reporting frequency revised from weekly (every Friday) to fortnightly/monthly/quarterly.
- Reduces compliance burden and improves data efficiency.
Significance for the Indian Banking Sector
- Regulatory Modernization:
- Brings long-overdue reforms to match evolving banking realities and economic scale.
- Cooperative Sector Strengthening:
- Ensures better oversight and democratic governance in urban and rural cooperative banks.
- Depositor Confidence:
- Protects unclaimed funds and improves institutional accountability—especially in PSBs.
- Audit Reform:
- Boosts transparency and enables better financial oversight in public banking.
