Banking Laws (Amendment) Act, 2025

GS3 – Economy

Context:

The Banking Laws (Amendment) Act, 2025, effective from August 1, 2025, seeks to update and strengthen governance and regulatory practices in the banking sector.

Scope:

The Act introduces 19 amendments across five key laws:

  • RBI Act, 1934
  • Banking Regulation Act, 1949
  • State Bank of India Act, 1955
  • Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980
Key Provisions:
  1. Governance Reform:
    • The threshold for determining a person’s ‘substantial interest’ in a bank is raised from ₹5 lakh to ₹2 crore, modernising the 1968 limit.
    • This aims to reduce the risk of undue influence or insider control in banking operations.
  2. Tenure of Cooperative Bank Directors:
    • The maximum tenure (excluding Chairperson and Whole-time Directors) is extended from 8 to 10 years, aligning with the 97th Constitutional Amendment on cooperative societies.
  3. Investor Protection:
    • Public Sector Banks are now allowed to transfer unclaimed shares and proceeds to the Investor Education and Protection Fund (IEPF).
    • This improves transparency and enables rightful claimants to recover unclaimed assets.
  4. Audit Reforms:
    • PSBs are empowered to decide the remuneration of auditors, ensuring better oversight and improving audit quality.
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