Key Provisions of the Banking Laws (Amendment) Act, 2025 Come Into Effect from August 1

From August 1, 2025, several provisions of the Banking Laws (Amendment) Act, 2025 officially come into force, bringing major changes to India’s banking governance framework. The legislation, notified on April 15, 2025, introduces 19 amendments across five major banking legislations, strengthening governance, depositor safety, and audit quality in the banking sector.

Scope of the Amendments

The Banking Laws (Amendment) Act, 2025 spans multiple legislations, including,

• The Reserve Bank of India Act, 1934
• The Banking Regulation Act, 1949
• The State Bank of India Act, 1955
• The Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980

Through Gazette Notification S.O. 3494(E) dated July 29, 2025, the Central Government confirmed that sections 3, 4, 5, 15, 16, 17, 18, 19, and 20 of the Act will take effect from August 1, 2025.

Major Provisions Introduced

1. Redefining “Substantial Interest”

• The threshold for determining substantial interest in a banking company has been revised from ₹5 lakh to ₹2 crore.
• This revision updates a limit that had remained unchanged since 1968, making the definition more relevant to present-day banking realities.

2. Longer Tenure for Cooperative Bank Directors

• In line with the 97th Constitutional Amendment, the maximum tenure for directors (excluding chairpersons and whole-time directors) in cooperative banks is now extended from 8 years to 10 years.
• This aims to enhance continuity and leadership stability in cooperative banks.

3. Transfer of Unclaimed Amounts to IEPF

• Public Sector Banks (PSBs) will now be able to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF).
• This brings PSBs in line with company practices under the Companies Act, ensuring better management of idle funds.

4. Enhancing Audit Quality in PSBs

• The Act empowers PSBs to decide remuneration for statutory auditors, enabling them to hire high-quality audit professionals.
• This move is expected to improve audit standards and strengthen the financial transparency of PSBs.

Objectives of the Act

The overarching goals of the Banking Laws (Amendment) Act, 2025 are to,

• Strengthen governance standards in the banking sector.
• Enhance depositor and investor protection.
• Improve audit quality in Public Sector Banks.
• Ensure constitutional compliance in cooperative banks’ director tenures.

A Step Towards Stronger Banking Governance

By addressing long-pending issues in governance, auditing, and depositor safety, the Act sets the stage for a more resilient and transparent banking ecosystem in India. The changes are particularly significant for Public Sector Banks and cooperative banks, where governance reforms have been long overdue.