Government Passes Banking Laws (Amendment) Bill to Strengthen Governance and Investor Protection
New Delhi: On Tuesday, the government successfully passed the Banking Laws (Amendment) Bill in the Lok Sabha, marking a significant step in bolstering the governance of financial institutions and safeguarding investor interests. This legislation introduces comprehensive reforms to five key banking laws, aiming to fortify the sector’s regulatory framework.
Finance Minister Nirmala Sitharaman underscored that the amendments focus on enhancing governance structures within banks, ensuring more consistent reporting to the Reserve Bank of India (RBI), protecting the rights of depositors and investors, elevating audit practices in public sector banks, and extending the tenure of non-chairperson, non-full-time directors in cooperative banks.
The bill includes 19 amendments spanning across several important acts, such as one modification to the Reserve Bank of India Act (1934), twelve to the Banking Regulation Act (1949), two to the State Bank of India Act (1955), two to the Banking Companies (Acquisition and Transfer of Undertakings) Act (1970), and two to the 1978 Act.
Key Provisions of the Bill:
– Enabling bank account holders to nominate up to four beneficiaries, providing greater flexibility in managing deposits and safe custody items.
– Mandating the transfer of unclaimed dividends, shares, and interest payments to the Investor Education and Protection Fund (IEPF), facilitating claims and refunds.
– Adjusting the reporting frequency for banks to the RBI, transitioning from weekly submissions to more regular reports at the end of each fortnight, month, or quarter, enhancing the reliability of data.
– Updating the definition of ‘substantial interest’ for directorships, raising the threshold from ₹5 lakh (set more than six decades ago) to ₹2 crore, ensuring better alignment with current financial realities.
– Allowing cooperative banks to extend the tenure of non-chairperson, non-full-time directors from 8 to 10 years, in line with constitutional changes. Additionally, directors of Central Cooperative Banks can now serve on the boards of State Cooperative Banks.
The bill also proposes greater flexibility for banks in determining the compensation of statutory auditors, further empowering financial institutions to ensure fair and transparent auditing practices.
Sitharaman praised the government’s strategic approach to strengthening the banking sector since 2014, which has significantly contributed to its stability. She highlighted the sector’s improved financial health, with banks now in a better position to raise capital in the markets. Moreover, the expansion of the bank branch network by 3,792 over the past year, taking the total to 1.65 million branches, including 85,116 public sector bank branches, signifies the government’s commitment to extending banking services to underserved areas.
A Long-Term Vision for the Financial Sector
In the broader context, the bill reflects the government’s long-term strategy to modernize India’s financial ecosystem, ensuring its resilience in an ever-evolving global economy. The amendments aim to improve internal controls, boost transparency, and increase accountability, fostering an environment of trust and security for investors. By addressing gaps in governance and reinforcing regulatory compliance, the legislation sets the stage for a more robust and transparent banking landscape.
Originally introduced in August 2024, the bill was passed following extensive discussions in the Lok Sabha. Its passage marks a decisive step in the government’s ongoing efforts to protect the interests of depositors and investors while enhancing the operational efficiency of the banking sector. This forward-thinking initiative is expected to stimulate investor confidence, attract further investments, and sustain growth in the financial sector.
