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:
- 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.
- 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.
- 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.
- Audit Reforms:
- PSBs are empowered to decide the remuneration of auditors, ensuring better oversight and improving audit quality.