Context:
Passed by Parliament on March 27, 2025 (Lok Sabha approved it in December 2024). Objective is to improve banking governance, nominee provisions, and financial reporting norms. It Affects five different acts in the banking sector.
Major Amendments & Provisions
A. Increased Nominee Limit
- Bank account holders can now nominate up to four nominees instead of the earlier restriction.
- Simultaneous nomination permitted for cash & fixed deposits.
- For lockers, only simultaneous nomination is allowed.
B. Redefinition of ‘Substantial Interest’
- Threshold increased from ₹5 lakh to ₹2 crore.
- First revision in nearly six decades.
C. Tenure of Cooperative Bank Directors
- Extended from 8 years to 10 years for directors (excluding chairman & whole-time directors).
- A director of a central cooperative bank can now serve on a state cooperative bank’s board.
D. Reporting & Compliance Changes
- Banks must now report on the 15th and last day of each month instead of the second and fourth Fridays.
E. Changes in Remuneration Rules
- Banks get more autonomy in deciding statutory auditors’ pay.
Government’s Stand & Financial Sector Impact
A. Focus on Tackling NPAs & Wilful Defaulters
- Finance Minister Nirmala Sitharaman assured strict action against fraud and defaulters.
- Directorate of Enforcement handled 912 bank fraud cases in the last five years.
- Clarified that ‘write-offs’ are not ‘loan waivers’—banks will still pursue recoveries.
B. Public Sector Bank Profitability
- PSBs reported a record ₹1.41 trillion profit in FY24.
- Expectation of further growth in FY25-26.
Implications
- Increased nominee flexibility enhances estate planning & legal clarity.
- Higher ‘substantial interest’ threshold aligns with economic realities.
- Extended director tenure ensures stability in cooperative banking.
- Revised compliance & reporting norms improve banking efficiency.
- Tougher stance on defaulters signals better banking discipline.
Overall, the Banking Laws (Amendment) Bill, 2024, modernizes banking governance, strengthens compliance, and enhances operational efficiency.
