New Delhi: The Lok Sabha on Wednesday cleared the Banking Laws (Amendment) Bill, 2024, which aims to strengthen governance standards in the sector and ensure better protection for depositors and investors.

The legislation, which includes amendments made by the Rajya Sabha, will now be sent to the President for final approval before becoming a law.

The bill also aims to improve consistency in reporting by banks to the Reserve Bank of India (RBI), enhance audit quality in public sector banks, and increase the framework of directors other than the chairperson and full-time directors in cooperative banks.

The legislation also introduces more than 20 amendments to bring changes in the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1978.

The major amendments

One major change proposed through the amendment bill is to the Banking Regulation Act, 1949 to allow account holders to include up to four nominees. 

This includes provisions for simultaneous and successive nominations, offering greater flexibility and convenience for depositors and their legal aids, especially concerning deposits and articles in safe custody.

The bill also seeks to transfer unclaimed dividends, shares, and interest or redemption of bonds to the Investor Education and Protection Fund (IEPF), allowing individuals to claim transfers or refunds from the fund.

The bill also proposes revising the reporting dates for banks to submit statutory reports to the Reserve Bank of India from every Friday to the last day of a fortnight, month or quarter.

Another proposed change relates to redefining ‘substantial interest’ for directorships, which would increase to ₹2 crore instead of the current limit of ₹5 lakh, which was fixed almost six decades ago.

For cooperatives 

With regard to cooperatives operating in the banking space, Union finance minister Nirmala Sitharaman said the amendments in the Banking Regulations Act would apply only to cooperative banks or that part of cooperatives operating as banks.

The bill proposes to increase the tenure of directors (excluding that of a chairperson and whole-time directors) in cooperative banks from 8 years to 10 years to align with the Constitution (Ninety-Seventh Amendment) Act, 2011.

Once implemented, the amended legislation would allow a director of a central cooperative bank to serve on the board of a state cooperative bank.

The bill also seeks to give greater freedom to banks in deciding the remuneration to be paid to statutory auditors.

Union finance minister Nirmala Sitharaman had first announced plans for amending India’s banking laws in her 2023-24 Budget speech. The bill was introduced on 9 August 2024 but could not be taken up for discussion. 

The Lok Sabha cleared the bill in December, while Rajya Sabha approved it with a few amendments on 26 March. This required the Lok Sabha to again approve the bill with amendments made by the upper house.