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Introduction:
The Banking Laws (Amendment) Bill, 2024 ("2024 Amendment") was passed by the Lok Sabha on December 3, 2024, with the general goal of amending specific provisions of the State Bank of India Act, 1955 ("SBI Act"), the Banking Regulation Act, 1949 ("BR Act"), and the Reserve Bank of India Act, 1934 ("RBI Act"). The finance minister alluded to these changes in her 2023–2024 budget speech, mentioning changes to strengthen bank control and the investor protection fund.
In general, the 2024 Amendment's changes can be broken down into five subsections: (i) modifications to the definition of "fortnight" and associated adjustments to the reporting and maintenance requirements of the entities covered by the RBI Act and the BR Act, respectively; (ii) modifications to specific provisions governing cooperative banks; (iii) an increase in the number of nominees for bank account holders; (iv) reforms pertaining to audit and the Investor Education and Protection Fund ("IEPF") for public sector banks; and (v) a change to the BR Act's definition of "Substantial Interest."
Overview of changes:
The meaning of "fortnight" has changed, along with additional modifications pertaining to reporting and maintenance: Instead of using the day of the month, the current approach based the reporting and cash reserve maintenance deadlines under Sections 42 of the RBI Act and 18 of the BR Act on the day of the week. The 2024 Amendment modifies the definition of "fortnight" in each of these sections, defining it as (i) the first to the fifteenth day of a month and (ii) the sixteenth to the last day of the calendar month. Under the current government, a fortnight was defined as the time between a Saturday and the following Friday.
Additionally, the maintenance requirements under Sections 24 and 25 of the BRA (which deal with the upkeep of a percentage of a bank's assets in India) will now be based on the updated definition of fortnight instead of Friday, which was the trigger day in the past. The purpose of this modification is to provide uniformity in reporting for scheduled banks.
Changes in regime related to co-operative banks:
Two modifications have been made to the management of cooperative banks by the 2024 Amendment. First, a director of a cooperative bank who is not the chairman or a full-time director may now serve for a continuous term of ten years. This eight-year limit applies to all other banking institutions. Second, the 2024 Amendment allows a central cooperative bank director to be elected to the board of a state cooperative bank of which they are a member. Generally speaking, no banking company established in India has a director who is simultaneously on the board of directors of another banking company, with the exception of directors chosen by the Reserve Bank of India ("RBI").
Nomination of up-to four nominees for bank accounts:
The relevant provisions of the BR Act have also been updated by the 2024 Amendment to provide for up to four nominees for a bank account, or the individuals to whom deposits held with a bank are to be transferred in the event of the death of a depositor (or all depositors). Articles held in a bank's safe custody or the contents of a locker that the bank maintains are likewise subject to the re-vamped regime for multiple nominee nomination.
Reforms concerning Public Sector Banks:
Under the 2024 Amendment, the State Bank of India Act of 1955, the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1980—collectively known as the "Public Sector Bank Laws"—have each undergone two amendments. The Public Sector Bank Laws offer the structure for the management of India's public sector banks, among other things. First, the 2024 Amendment gives the relevant bank the authority to determine the compensation due to the statutory auditor designated under section 141 of the Companies Act of 2013.
This step has been taken to increase the autonomy of public sector banks, and to ensure that the services provided by the auditors hired by them are at par with those availed by private sector banks. Next, the provisions concerning transfer of unclaimed dividends issued by the relevant bank have been expanded. Earlier, only such amount in the bank’s unclaimed dividend account which was unclaimed or unpaid for a period of seven years was to be transferred to the IEPF established under section 125 of the Companies Act, 2013 (the 2024 Amendment has also removed references to section 205C of the erstwhile Companies Act, 1956 setting up the IEPF). Under the expanded regime, any interest or redemption amount upon any bond issued by the bank, which remains unclaimed or unpaid for a period of seven years from the date such interest became due must also be deposited in the IEPF.
Other Changes:
Additionally, the 2024 Amendment has changed what is meant by "substantial interest." To be considered to have "substantial interest" in a corporation, one must now own shares worth INR 2,00,00,000 (Indian Rupees Two Crore), or 10% of the firm's paid-up capital, whichever is less. Previously, the threshold was INR 5,00,000 (Indian Rupees Five Lakh). In banking company governance, the meaning of "substantial interest" becomes important, particularly when it comes to preventing individuals with stakes in other businesses from gaining a majority on a banking firm's board of directors.
Conclusion:
Even though the 2024 Amendment has made some progress toward long-overdue reforms, it falls short of any significant reform. Most of the modifications are housekeeping and procedural in nature. For example, although public sector banks now have more autonomy when it comes to hiring auditors, this does not significantly lessen the burden of excessive regulation that these banks already bear. In addition, the 2024 Amendment may have been a fantastic chance to change important parts of India's banking system, like customer and know-your-customer services, which are now convoluted and alienating to the final user of banking services. The 2024 Amendment, however, avoids such significant adjustments.