Union Finance Minister Nirmala Sitharaman is set to introduce the Banking Laws (Amendment) Bill, 2024 in the Lok Sabha on 2nd December, 2024. The bill aims to amend several key banking-related legislations, including the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. The amendments are expected to enhance the functioning and regulation of the banking sector, and the bill will be considered for debate and passage in the lower house of Parliament.

Key Amendments in the Banking Laws (Amendment) Bill, 2024

1. Definition of Fortnight for Cash Reserves

Current Definition

• The RBI Act defines a “fortnight” as the period from Saturday to the second following Friday (including both days) to calculate the average daily balance held by scheduled banks as cash reserves.

Proposed Amendment

The Bill changes the definition of a “fortnight” to:

• The period from the 1st day to the 15th day of each month, and
• The period from the 16th day to the last day of each month.

Impact

• This change also applies under the Banking Regulation Act, where non-scheduled banks are required to maintain cash reserves.

2. Tenure of Directors of Co-operative Banks

Current Rule

• Directors of co-operative banks (except the chairman or whole-time directors) cannot hold office for more than eight consecutive years.

Proposed Amendment

• The Bill seeks to increase the tenure for directors of co-operative banks to 10 consecutive years.

Impact

• This extension is expected to provide stability in the governance of co-operative banks.

3. Prohibition on Common Directors in Co-operative Banks

Current Rule

• The Banking Regulation Act prohibits a director from serving on the boards of more than one bank, with exceptions for directors appointed by the RBI.

Proposed Amendment

• The Bill extends this exemption to the directors of central co-operative banks, allowing them to serve on the board of a state co-operative bank in which they are a member.

Impact

• This aims to enhance coordination and strengthen the leadership within the co-operative banking system.

4. Substantial Interest in a Company

Current Rule

• The Banking Regulation Act defines “substantial interest” as holding shares worth more than ₹5 lakh or 10% of the paid-up capital, whichever is less.

Proposed Amendment

• The Bill increases this threshold to ₹2 crore, allowing individuals and their families (spouse or minor children) to hold a larger stake before it is considered substantial.

Impact

• This change is expected to relax restrictions on shareholding, particularly benefiting larger investors and corporate entities.

5. Nomination for Deposits and Bank Products

Current Rule

• The Banking Regulation Act allows depositors to appoint a single nominee for their deposits, articles, or lockers.

Proposed Amendment

The Bill allows up to four nominees for,

• Deposits (either simultaneously or successively).
• Other items like articles and lockers (successively).

Impact

• The Bill outlines that in case of simultaneous nominations, the distribution will be according to a declared proportion. For successive nominations, the person listed first in the order of nomination will have priority.

Outcome

• This will facilitate the distribution of assets and clarify the rights of multiple nominees.

6. Settlement of Unclaimed Amounts

Current Rule

• Under the State Bank of India Act and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980, unpaid or unclaimed dividends are transferred to an unpaid dividend account, and after seven years, they are moved to the Investor Education and Protection Fund (IEPF).

Proposed Amendment

• The Bill widens the scope of funds that can be transferred to the IEPF, now including:
• Shares for which dividends have not been claimed for seven consecutive years.
• Interest or redemption amounts for bonds that remain unpaid/unclaimed for seven years.

Impact

• Individuals can claim unclaimed funds that have been transferred to the IEPF, helping to resolve outstanding claims and promote financial transparency.

7. Remuneration of Auditors

Current Rule

• The remuneration for auditors of banks is decided by the RBI in consultation with the central government.

Proposed Amendment

• The Bill empowers banks to determine the remuneration for their auditors independently.

Impact

• This amendment is expected to streamline the process and reduce bureaucratic involvement in the auditing procedures of banks.

Summary/Static	Details
Why in the news?	Banking Laws (Amendment) Bill, 2024 Set To Introduce in the Lok Sabha
Key Amendment	Current Rule	Proposed Amendment	Impact
1. Definition of Fortnight for Cash Reserves	Fortnight is defined as the period from Saturday to the second following Friday.	Redefines a fortnight as: 1st-15th day and 16th-last day of each month.	Standardizes the calculation of cash reserves for scheduled and non-scheduled banks.
2. Tenure of Directors of Co-operative Banks	Directors (except chairman/whole-time) cannot hold office for more than 8 consecutive years.	Increases tenure to 10 consecutive years for directors of co-operative banks.	Provides stability in co-operative banks’ governance.
3. Prohibition on Common Directors in Co-operative Banks	Prohibits a director from serving on the boards of multiple banks, with exceptions for RBI-appointed directors.	Extends exemption to allow directors of central co-operative banks to serve on state co-operative bank boards.	Enhances coordination and strengthens leadership within co-operative banks.
4. Substantial Interest in a Company	Defines substantial interest as shares worth more than ₹5 lakh or 10% of paid-up capital.	Increases the threshold to ₹2 crore for substantial interest, including family members.	Relaxation of restrictions, benefiting larger investors and corporate entities.
5. Nomination for Deposits and Bank Products	Allows a single nominee for deposits, articles, or lockers.	Allows up to four nominees for deposits and items like articles/lockers (simultaneously or successively).	Facilitates distribution of assets and clarifies rights of multiple nominees.
6. Settlement of Unclaimed Amounts	Unclaimed dividends are transferred to the IEPF after seven years.	Expands scope to include unclaimed shares, interest, or redemption amounts for seven years.	Enables individuals to claim unclaimed funds, promoting financial transparency.
7. Remuneration of Auditors	Remuneration for auditors is decided by RBI in consultation with the government	Banks can independently determine the remuneration for their auditors.	Streamlines the process and reduces bureaucratic involvement in banking audits.