Context:
The Banking Laws (Amendment) Act, 2025 was recently notified on 15th April 2025, containing a total of 19 amendments across five legislations—the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, State Bank of India Act, 1955 and Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980. The Act officially brings into effect sections 3, 4, 5, 15, 16, 17, 18, 19, and 20 from 1 August 2025.
Key Provisions and Features:
The aim of the Act is to enhance governance, strengthen depositor and investor protection, ensure higher audit quality in public sector banks (PSBs), and bring cooperative bank regulations in line with constitutional standards.
· Redefining ‘Substantial Interest’: The threshold for determining a person’s substantial interest in a bank has been increased from ₹5 lakh to ₹2 crore. The older limit, unchanged since 1968, did not reflect inflation or changes in the scale of banking operations. The revised limit ensures more realistic governance standards and prevents minor stakeholders from exerting disproportionate influence.
· Director Tenures in Cooperative Banks: In line with the 97th Constitutional Amendment, the Act increases the maximum tenure of directors in cooperative banks from 8 years to 10 years, excluding the chairperson and whole-time directors. This brings cooperative banks closer to democratic and accountable governance structures.
· Transfer of Unclaimed Assets to IEPF: Public Sector Banks will now be permitted to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF). This aligns PSBs with practices already followed by companies under the Companies Act, enabling efficient recycling of idle financial resources.
· Audit Reforms for PSBs: The amendments empower PSBs to offer remuneration to statutory auditors, enabling them to attract top-quality audit professionals. This step is expected to significantly improve the transparency, independence, and quality of financial audits in public sector banks.
· Statutory Reporting Reforms: Banks will no longer be required to report data to the RBI every Friday. Instead, reporting will follow fortnightly, monthly, or quarterly cycles, depending on the requirement. This will ease operational pressure and enhance data relevance.
About the Legislations:
· Reserve Bank of India Act, 1934: empowers the RBI to regulate currency, credit, and monetary policy.
· Banking Regulation Act, 1949: governs banking operations, including licensing, audits, and capital norms.
· State Bank of India Act, 1955: established SBI and outlines its structure and functions.
· Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980: nationalised 20 private banks, creating ‘corresponding new banks’ to promote financial inclusion.
Significance of the Act:
· Modernisation of Norms: By updating provisions that were over five decades old, the Act brings regulatory practices in sync with current financial realities.
· Better Oversight in Cooperative Banks: The increased tenure ensures continuity and improved accountability in governance.
· Investor and Depositor Protection: Secure handling of unclaimed funds and better audits boost public confidence.
· Efficient Banking Operations: Revised reporting timelines reduce burden and streamline workflows.
Conclusion:
The Banking Laws (Amendment) Act, 2025 is a timely and necessary legislative update that reflects India’s evolving financial ecosystem. By addressing legacy gaps and aligning with constitutional and corporate governance standards, the Act paves the way for a more robust, transparent, and accountable banking framework.
