Finance Minister Nirmala Sitharaman stated on Tuesday that the Banking Laws (Amendment) Bill, 2024 would strengthen governance in India’s banking sector while enhancing customer convenience and ensuring the safety of depositors and investors. The minister introduced the bill in the Lok Sabha for consideration and passage. The proposed legislation aims to improve governance standards and ensure consistent reporting by banks to the Reserve Bank of India (RBI). It is designed to bolster the security of depositors and investors and improve service quality in public sector banks.
Once passed, the Banking Regulation Act will allow depositors to nominate up to four individuals. It includes provisions for simultaneous and sequential nominations, providing greater flexibility and convenience for depositors and their legal heirs, particularly concerning deposits, accounts, safe custody, and safety lockers.
The proposed amendments also seek to extend the tenure of directors (other than the chairman and full-time directors) in cooperative banks from eight years to ten years. The Banking Laws (Amendment) Bill, 2024, proposes a total of 19 amendments. To ensure consistency in reporting, the bill mandates that banks report to the RBI on the last day of each fortnight, replacing the current requirement of reporting on Fridays.
Under the RBI Act, scheduled banks must maintain a certain level of average daily balances with the RBI as cash reserves. This average is calculated based on the daily balances held by banks at the end of each business day during a fortnight. A fortnight is currently defined as the period from Saturday to the second Friday (inclusive). The bill redefines a fortnight as the period from the 1st to the 15th of a month or the 16th to the last day of the month.
The bill also modifies the definition of cash reserve maintenance requirements for non-scheduled banks under the Banking Regulation Act.
Furthermore, it redefines “substantial shareholding” in a company. The current definition refers to holding shares worth more than ₹5 lakh or exceeding 10% of paid-up capital, whichever is lower. The amendment raises this threshold to ₹2 crore. Additionally, the central government will have the authority to alter this amount through notifications.
Another significant provision in the proposed bill allows a director of a central cooperative bank to serve on the board of a state cooperative bank. Currently, directors can hold positions in only one institution at a time. This amendment addresses the unique structure of cooperative banks, where individuals often need to serve at multiple levels to progress within the system.
The bill also ensures that individuals whose shares or unclaimed funds are transferred to the Investor Education and Protection Fund (IEPF) can claim a refund or request a transfer back. Currently, funds lying unclaimed in accounts for seven years are transferred to the IEPF.
This comprehensive set of reforms aims to modernize India’s banking framework, enhance operational flexibility, and safeguard the interests of all stakeholders.
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