On Tuesday, the Banking Laws (Amendment) Bill, 2024 was passed in the Lok Sabha during the winter session of Parliament, marking a significant milestone in the ongoing reforms in the Indian banking sector. Finance Minister Nirmala Sitharaman highlighted the key provisions of the Bill, which are aimed at modernizing banking regulations and improving operational efficiency.
Key Provisions of the Banking Laws (Amendment) Bill, 2024:
- Introduction of Multiple Nominees for Depositors:
A major change introduced in the Bill is the expansion of the nominee system for bank accounts and fixed deposits. Previously, depositors could nominate only one individual. The Bill now allows depositors to nominate up to four individuals, simplifying the process of fund distribution after the account holder’s death. This provision aims to resolve the difficulties experienced by families during the Covid-19 pandemic, where access to funds was often delayed due to the lack of clear succession plans.
Additionally, depositors will have the option of simultaneous nomination (where each nominee is assigned a specific percentage share) or successive nomination (where nominees inherit funds in a predefined order). This flexibility is expected to streamline the process and reduce procedural delays for families during such events.
- Redefining ‘Substantial Interest’ for Bank Directorships:
Another significant change in the Bill is the revision of the threshold for “substantial interest” in bank directorships. The Bill proposes to increase the limit from ₹5 lakh to ₹2 crore, a figure that had remained unchanged for nearly six decades. This change is aimed at enhancing transparency and ensuring better governance in the banking sector.
- Changes to Reporting and Regulatory Compliance:
The Bill introduces modifications to the regulatory reporting dates for banks. The new deadline will be the 15th and the last day of every month, replacing the existing practice of submitting reports on the second and fourth Fridays. This adjustment is expected to make the process more efficient and timely.
- Greater Flexibility for Statutory Auditors:
The proposed amendment also grants banks more freedom in deciding the remuneration for statutory auditors, providing them with the flexibility to align compensation with industry standards.
- Changes in the Tenure of Directors in Cooperative Banks:
The amendment extends the tenure of directors in cooperative banks from 8 years to 10 years, aligning with the constitutional amendments introduced under the Constitution (Ninety-Seventh Amendment) Act, 2011. Additionally, it allows directors of Central Cooperative Banks to serve on the boards of State Cooperative Banks.
- Focus on Strengthening Governance:
Sitharaman emphasized that the Bill is designed to strengthen banking governance while ensuring better customer convenience. The amendments aim to create a more robust regulatory framework for financial institutions, enhancing the protection of investors and providing greater transparency in banking operations.
7. Support for the Growth of Banks and Financial Institutions:
Sitharaman also noted that these reforms will support banks in raising capital through the issuance of bonds, loans, and other financial instruments, thereby enabling them to better navigate the challenges of modern-day business. She further pointed out that the health of Indian banks has improved, which allows them to be more competitive in the global market.
Impact of the Reforms:
The amendments introduced in the Bill are expected to bring about several positive changes in the banking landscape:
- Improved governance in banks, fostering greater transparency and accountability.
- Better protection for investors, with clearer guidelines on nominations and audit practices.
- Enhanced customer convenience, especially in the context of digital banking, through more flexible and secure processes.
The Banking Laws (Amendment) Bill, 2024 is a forward-looking reform aimed at not only strengthening the regulatory framework but also ensuring that Indian banks are equipped to meet future challenges.
These amendments were initially outlined by Nirmala Sitharaman in her 2023-24 Budget Speech, and the subsequent introduction of the Bill in Lok Sabha is a significant step towards realizing these objectives. The changes, including updates to the Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949, will have a long-term positive impact on the Indian banking sector.
The passage of the Bill represents a major leap forward in the evolution of the banking sector, helping align it with modern financial practices and global standards.
