Finance Minister Nirmala Sitharaman introduced the Banking Laws (Amendment) Bill 2024. It was presented in the Lok Sabha on August 9th, 2024. The bill, passed by the Lok Sabha on December 3rd, 2024, became the first to be passed during the Winter Session. The House approved the bill through a voice vote.
What are the acts being amended through this bill?
As the name suggests, the bill aims to reform the laws that govern our banking systems. So, through this bill, the following acts shall be amended:
- Reserve Bank of India (RBI) Act, 1934.
- Banking Regulation Act, 1949
- State Bank of India Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
What are the changes brought about by the bill?
Change in the definition of the word ‘Fortnight’
The RBI Act stipulates that the scheduled banks must maintain a fixed amount of average daily balance with the RBI as cash reserves. The average daily balance is calculated based on the average of the balances held by banks at the closing of business on each day of a fortnight.
Earlier, the definition of fortnight was the period from Saturday to the second following Friday (which includes these two days). The bill brings a change here. Now, fortnight shall be defined as the period from the 1st day to the 15th day of each month or the 16th day to the last day.
This change has also been incorporated in the Banking Regulation Act, under which non-scheduled banks are mandated to maintain cash reserves.
Change in the Tenure of directors of cooperative banks
As per the Banking Regulation Act, the director of a bank is prohibited from holding any office for more than 8 consecutive years. However, the chairman or the whole-time director are exceptions in this case. The bill intends to increase this period to 10 years for cooperative banks.
Common directors prohibited in the case of cooperative Banks
The Banking Regulation Act prevents the director on a bank’s board from serving on the board of another bank. However, an exception is given to the directors who have been appointed by/at the orders of the RBI. This exception/exemption will also be given to the director of a central cooperative bank.
Further, this amendment will apply when the person is elected to the board of a state cooperative bank in which he is a member.
Substantial Interest in a company
According to the Banking Regulation Act, substantial interest refers to the holding shares of a company of over five lakh rupees or 10% of the company’s paid-up capital, whichever is lesser. The holding can be by an individual, spouse, or minor child, collectively or individually.
This is where the bill intends to bring a change. Through this bill, the threshold for defining substantial interest will now be Rs. 2 Crore. The Central Government can alter this amount through a notification.
Change in Nomination
The Banking Regulation Act allows single or joint deposit holders to appoint nominees. Nominees can also be appointed to the extent of the items left in the bank’s custody or for a locker hired from a bank.
After nomination, the nominee can access the deposit, the articles, or the locker in case the person who nominated him dies. Through this amendment, four nominees can now be appointed for this purpose. Regarding deposits, the nominees may be appointed successively or simultaneously as per the nominating person. Whereas for other purposes, successive appointment is the mandate.
The amendment bill also says that if the person has been nominated in a simultaneous manner, it will be effective in a declared proportion only. On the other hand, successive nominations will allow the nominee named higher in the order of nomination to receive priority.
Settlement of Unclaimed Amounts
The State Bank of India Act, along with the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980, allows the transfer of unpaid and/or unclaimed dividends into an unpaid dividend account. If the money has been lying in this account for seven years and no one has claimed it, it is supposed to be transferred into the Investor Education Protection Fund (IEPF).
This amendment bill is increasing the ambit of the funds, which will allow more types of funds to be transferred into the fund. The types of funds are:
- shares for which dividend has not been paid or claimed for seven consecutive years
- Interest or redemption amount for bonds that are unpaid/unclaimed for 7 years.
A person whose shares or unclaimed/unpaid money has been transferred to IEPF can claim the funds and request a refund.
Remuneration of Auditors
The remuneration paid to the auditors is decided jointly by the RBI and the Central Government. Now, through this bill, banks will get to decide the remuneration they want to give their auditors.
What did Sitharaman say on the bill?
While debating the bill in the Lok Sabha, Nirmala Sitharaman said, “India’s banking sector is critical to the nation. We can’t let even one bank struggle. Since 2014, we have been extremely cautious that banks remain stable. Our intention is to keep our banks safe, stable, and healthy, and in 10 years, everyone will see the outcome, which in turn will benefit the economy.”
She added that “the proposed amendments will strengthen governance in the banking sector and enhance customer convenience concerning nomination and protection of investors.”
She further added, “Banks are being professionally run today. The metrics are healthy, so they can go to the market and raise bonds and loans and run their business accordingly.”
What did the opposition say?
During the debate, the opposition openly criticised the bill. The deputy leader of Congress, Gaurav Gogoi, questioned India’s stance regarding China, as imports from the latter seem to be on the rise. Rani Srikumar from Dravida Munnetra Kazgham raised the question of the fees levied for basic banking services like ATM withdrawals and SMS alerts.
Supriya Sule, from the Nationalist Congress Party (NCP) faction of Sharadchandra Pawar, suggested a stringent approach so that the perpetrators of financial fraud compensate their victims before imprisonment.
Conclusion
The Banking Laws (Amendment) Bill, 2024, introduced by the Finance Minister, aims to reform the banking laws in India. Several acts, like the RBI Act and the Banking Regulation Act, have been amended to make them more comprehensive. In these acts, several key facets, like fortnight for cash reserves, director’s Tenure, substantial interest threshold, etc., have been amended to enhance banking governance and customer support while attempting to address the present concerns in this field.
