The Banking Laws (Amendment) Act, 2025, comes into effect on August 1, bringing key changes to bank capital norms, governance, and auditor rules. Here’s a detailed explanation.
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NEW DELHI: Several key provisions of the Banking Laws (Amendment) Act, 2025, will come into effect from 1st August 2025, as notified by the Ministry of Finance. The amendments, which were passed earlier this year, mark a pivotal step toward aligning the banking sector with modern-day needs for accountability, transparency, and depositor protection.
What Does the Banking Laws (Amendment) Act, 2025 Cover?
Notified on 15 April 2025, the Banking Laws (Amendment) Act, 2025, introduces 19 amendments across five key legislations, namely, the
- Reserve Bank of India Act, 1934;
- Banking Regulation Act, 1949;
- State Bank of India Act, 1955;
- Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.
These amendments are aimed at enhancing governance in public sector banks (PSBs), increasing transparency, strengthening regulatory oversight of cooperative banks, and improving audit practices to ensure greater financial accountability and depositor protection.
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Key Provisions Effective from 1 August 2025
Redefinition of ‘Substantial Interest’ in Cooperative Banks:
One of the most notable changes is the redefinition of what qualifies as a “substantial interest” for becoming a director in a cooperative bank.
- The threshold has been increased from Rs 5 lakh to Rs 2 crore, bringing the definition in line with current financial realities.
- The earlier Rs 5 lakh limit was fixed nearly six decades ago, making this update long overdue.
Extended Tenure for Directors in Cooperative Banks:
- The maximum tenure for directors (excluding chairpersons and whole-time directors) in cooperative banks has been increased from 8 years to 10 years.
- This move aligns with the 97th Constitutional Amendment, which emphasizes the democratic and transparent functioning of cooperative institutions.
Transfer of Unclaimed Amounts to IEPF:
- Public Sector Banks can now transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF).
- This aligns PSB practices with those already in place under the Companies Act, improving fund management transparency.
Improved Audit Standards:
- The amendment allows PSBs to offer remuneration to statutory auditors, enabling them to attract high-quality audit professionals.
- This step is aimed at enhancing the audit quality and financial integrity of public sector banks.
Revised Reporting Schedule to RBI:
- Banks will now submit their statutory reports to the Reserve Bank of India based on the last day of the fortnight, month, or quarter, instead of every Friday.
- This change helps streamline the regulatory reporting process and reduce operational burden.
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The idea of amending the Banking Regulation Act was first proposed in the 2023–24 Union Budget speech. The bill was initially introduced in Parliament on 9 August 2024, but could not be taken up for discussion at that time.
It was subsequently passed by the Lok Sabha in December 2024 and approved by the Rajya Sabha, with a few amendments, on 26 March 2025. The Lok Sabha then gave its final approval in April 2025, officially turning the bill into law.
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