In July 2025, the Government of India (GoI) notified that important provisions of the Banking Laws (Amendment) Act, 2025 will come into effect from August 01, 2025, aiming to reshape the landscape of Indian banking.
Exam Hints:
- What? Banking Laws (Amendment) Act,2025
- Number of amendments? 19
- Substantial Interest: From Rs.5 lakhs to Rs.2 crores
- Director Tenure: Extended from 8 years to 10 years
- Unclaimed Assets: To IEPF
- Statutory Auditors: PSB can fix remuneration
- Reporting Changes: last day of the fortnight, month or the quarter
Key Highlights:
Background: The Banking Laws (Amendment) Act, 2025 was first published on April 15, 2025, after receiving the President’s approval.
Objective: The amended legislation aims to enhance bank governance, safeguard depositors and investors, improve audits at Public Sector Banks (PSB), and increase the tenure of directors (other than the chairperson and whole-time directors) in cooperative banks.
Acts Covered: The amendment introduces 19 amendments across 5 key legislations:
- the Reserve Bank of India (RBI) Act, 1934
- Banking Regulation Act, 1949
- State Bank of India (SBI) Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
Amendments:
Redefinition of Substantial Interest: The threshold for “substantial interest” has been increased from Rs 5 lakh to Rs 2 crore, a limit that had remained unchanged since 1968.
- This amendment aims to modernise the definition of substantial interest to reflect inflation and sectoral growth.
Director Tenure in Cooperative Banks: The maximum tenure for directors in cooperative banks has been extended from 8 years to 10 years, excluding the chairperson and whole-time director (WTD).
- This aligns with the 97th Constitutional Amendment and aims to promote stability in cooperative bank management.
Unclaimed Assets to Investor Education and Protection Fund (IEPF): The PSBs will now transfer unclaimed amounts to the IEPF, similar to practices followed by companies under the Companies Act,2013.
- The assets included dividends remaining unpaid/unclaimed, shares where dividends haven’t been claimed for 7 consecutive years, and unclaimed interest/redemption amounts on bonds.
Remuneration for statutory auditors: The PSBs now can directly fix the remuneration of their statutory auditors, replacing the earlier model where the RBI fixed it in consultation with the GoI.
- This reform gives banks greater autonomy and flexibility to attract qualified statutory auditors by offering market-aligned compensation.
Reporting Changes: The amendments also revise the reporting dates for the submission of statutory reports by banks to the RBI from reporting every Friday to the last day of the fortnight, month or the quarter.
- This adjustment streamlines regulatory compliance and reduces reporting burdens.
Note: Before the enactment of the new law, under the Banking Regulation Act, substantial interest in a company referred to holding shares of over Rs. 5 lakhs or 10% of the paid-up capital of the company, whichever was lower. This may be held by an individual, his spouse, or minor child, either individually or collectively.
