New Delhi, Dec 4: The Government of India has enacted the Banking Laws (Amendment) Act, 2025, marking a significant step toward modernizing the country’s banking governance, strengthening depositor protection, and improving audit and reporting standards across public sector and cooperative banks.
The amendments, notified in two stages earlier this year, update five major legislations, including the Reserve Bank of India Act (1934), the Banking Regulation Act (1949), the State Bank of India Act (1955), and both Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. The changes are aimed at enhancing transparency, operational efficiency, and regulatory oversight in line with India’s rapidly evolving digital financial landscape.
Strengthened Depositor Rights and Nomination Rules
A key reform under the Act is the introduction of a modernised nomination framework. Depositors can now nominate up to four individuals for their accounts, lockers, and articles in safe custody, allowing both simultaneous and successive nominations. The measure is designed to ensure smoother succession and reduce delays in claim settlements—an issue that has contributed to large volumes of unclaimed deposits in banks.
Governance and Audit Improvements
To reflect changing financial realities, the threshold for determining “substantial interest” has been revised from ₹5 lakh—unchanged since 1968—to ₹2 crore. Governance norms for cooperative banks have also been strengthened, with the maximum tenure for directors (excluding the chairperson and whole-time directors) raised from eight to ten years, aligning them with provisions of the 97th Constitutional Amendment.
Public sector banks will now have greater autonomy in fixing auditors’ remuneration, a move expected to improve audit quality. Additionally, unclaimed shares, interests, and bond redemption amounts can now be transferred to the Investor Education and Protection Fund (IEPF), increasing transparency in the management of idle financial assets.
Updated Reporting Standards and Operational Clarity
The Act simplifies several statutory definitions and reporting requirements. Reporting dates previously tied to “last Friday” or “alternate Fridays” have been aligned with the last day of the month or fortnight, reducing manual workload and ensuring greater consistency with accounting cycles. The updates also address emerging technological and operational challenges faced by banks as financial inclusion expands nationwide.
Broader Impact on the Banking Ecosystem
The reforms are expected to strengthen depositor confidence, streamline succession processes, foster better corporate governance, and help India’s banking institutions keep pace with increasing digitalization and financial complexity. By aligning the legal framework with contemporary needs, the Act reinforces India’s vision of a secure, inclusive, and transparent financial system.
The Ministry of Finance said the Act represents “a major step in fortifying the legal, regulatory, and governance structure of the Indian banking sector,” ensuring that both depositors and service providers benefit from clearer norms and modern operational standards.
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