Banking Laws (Amendment) Act, 2025

• Context (PIB): The Banking Laws (Amendment) Act, 2025, comes into effect from August 1, 2025, aiming to modernise & strengthen governance and regulatory frameworks across India’s banking sector.
• The provisions of the Act address legacy gaps through a comprehensive legal overhaul aimed at enhancing governance, audit quality, and depositor protection in Public Sector Banks (PSBs).

Banking Laws (Amendment) Act, 2025

Scope

• The legislation introduces 19 amendments across five key banking laws:
  1. The Reserve Bank of India Act, 1934
  2. The Banking Regulation Act, 1949
  3. The State Bank of India Act, 1955
  4. The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980

Objectives of the Reforms

• To modernise the banking regulatory framework in line with current economic and financial realities.
• To strengthen governance in banks, especially cooperative banks, by ensuring better leadership and accountability.
• To enhance protection for depositors and investors, ensuring unclaimed funds are managed responsibly.
• To reduce unnecessary compliance burden on banks and improve operational efficiency.
• To align Indian banking practices with international standards, improving trust and financial stability.

Key Provisions of the Act

• Governance Safeguard: Raises ‘substantial interest’ threshold from ₹5 lakh to ₹2 crore, updating the 1968 limit to reduce insider control risks in banks.
• Tenure Reform: Extends the tenure of cooperative bank directors (excluding the chairperson and whole-time director) from 8 to 10 years, aligning with the 97th Constitutional Amendment.
• Investor Safeguard: Enables PSBs to transfer unclaimed shares and proceeds to the Investor Education and Protection Fund (IEPF), enhancing fund transparency, bringing them in line with practices followed by companies under the Companies Act.
• Audit Reform: Permits PSBs to determine auditor remuneration, improving audit quality and oversight.
• Streamlined reporting to RBI: Reporting will now take place on the last day of the fortnight, month, or quarter, easing compliance burdens while maintaining regulatory oversight.

Its Significance

• 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.