New Age Banking in India

Posted On - 28 April, 2026 • By - Siddartha Karnani

Introduction

A well-functioning banking system lies at the heart of any modern economy. Banks perform critical financial intermediation functions by facilitating savings, extending credit, enabling payments, and supporting capital formation. Through products such as deposit accounts, loans, and credit facilities, banking institutions not only provide financial assistance but also integrate individuals and businesses into the formal economic framework, thereby contributing to overall economic growth.

Over the past few decades, India’s banking sector has undergone a significant transformation from a predominantly branch-based, paper-driven system to a technology-enabled, digital ecosystem. Government-led initiatives such as Aadhaar-based identification and the Pradhan Mantri Jan Dhan Yojana (PMJDY) have materially advanced financial inclusion by expanding access to banking services across rural and urban populations.

In this evolving landscape, legislative reform has been essential to align regulatory frameworks with emerging operational realities. The Banking Laws (Amendment) Act, 2025 represents a recent and important step in this direction, seeking to strengthen governance standards, improve audit quality, enhance regulatory compliance, and provide greater protection to depositors.

India’s banking regulatory architecture has developed progressively alongside its economic growth, supported by a series of foundational statutes.

The Reserve Bank of India Act, 1934 established the Reserve Bank of India (RBI) as the country’s central monetary authority, tasked with currency management, credit regulation, and maintenance of financial stability. The RBI has also played a developmental role by fostering key financial institutions.

Subsequently, the Banking Regulation Act, 1949 created a comprehensive framework for the regulation and supervision of banking companies, ensuring uniform standards and systemic stability.

Post-independence reforms included the enactment of the State Bank of India Act, 1955, which facilitated the establishment of the State Bank of India to expand banking outreach, particularly in rural and semi-urban regions.

A watershed moment in Indian banking came with the Bank Nationalisation in India (1969), followed by subsequent nationalisations in 1980. These measures were aimed at aligning banking operations with socio-economic priorities and enhancing credit delivery to underserved sectors.

Rationale for the Banking Laws (Amendment) Act, 2025

The need for the Banking Laws (Amendment) Act, 2025 arises from structural and operational changes within the banking ecosystem. Rapid digitisation, increasing financial inclusion, and the growing complexity of financial products have exposed gaps in the existing regulatory framework.

One persistent issue has been the accumulation of unclaimed deposits, often arising from the absence of registered nominees or lack of clarity in succession mechanisms.1 This has led to prolonged claim settlement processes and customer grievances.

Additionally, the shift towards digital banking has necessitated streamlined compliance mechanisms, standardised reporting practices, and reduced reliance on manual processes. The Amendment Act addresses these concerns by modernising legal provisions and aligning them with current industry practices.

Key Reforms under the Banking Laws (Amendment) Act, 2025

The Act introduces several significant reforms aimed at improving governance, operational efficiency, and depositor protection:

1. Modernisation of the Nomination Framework

The Act introduces a flexible and structured nomination regime. Deposit holders may now appoint up to four nominees, either:

  • Simultaneously, with specified percentage shares; or
  • Sequentially, where nomination operates in a defined order of succession.

This reform is expected to significantly expedite the settlement of claims and reduce disputes relating to inheritance of financial assets.

2. Revision of “Substantial Interest” Threshold

The monetary threshold for determining “substantial interest” has been increased from ₹5 lakh to ₹2 crore. This revision reflects inflationary trends and ensures that governance-related disqualifications remain relevant and proportionate in the current economic context.

3. Governance Reforms in Co-operative Banks

To promote continuity and stability in co-operative banking institutions, the maximum tenure for directors (excluding chairpersons and whole-time directors) has been extended from eight to ten years. This aligns with broader constitutional principles relating to co-operative governance and aims to balance democratic functioning with institutional stability.

4. Audit and Financial Transparency Reforms in Public Sector Banks

Public sector banks are now permitted greater autonomy in determining the remuneration of statutory auditors, which is expected to attract higher-quality audit professionals and improve audit standards.

Further, provisions enabling the transfer of unclaimed financial assets such as shares, bonds, and other instruments to the Investor Education and Protection Fund (IEPF) enhance transparency and align banking practices with broader corporate governance norms.

5. Rationalisation of Regulatory Reporting

The Act replaces earlier reporting practices such as submissions tied to specific weekdays with standardised, date-based compliance timelines. This change reduces ambiguity, improves consistency, and facilitates automation in regulatory reporting.

Impact of the Reforms

The reforms introduced by the Banking Laws (Amendment) Act, 2025 are expected to have a multi-dimensional impact:

  • Enhanced Depositor Protection: Streamlined nomination processes will enable faster and more efficient settlement of claims, strengthening depositor confidence.
  • Improved Governance Standards: Updated thresholds and tenure provisions will ensure more effective oversight and institutional continuity.
  • Greater Transparency: Transfer of unclaimed assets to the IEPF will promote accountability and reduce opacity in financial asset management.
  • Operational Efficiency: Rationalised reporting and reduced procedural complexity will lower compliance burdens and improve efficiency across banking institutions.

Conclusion

The Banking Laws (Amendment) Act, 2025 marks a significant step in modernising India’s banking regulatory framework. By addressing legacy inefficiencies and aligning legal provisions with technological advancements, the Act strengthens governance, enhances depositor protection, and promotes transparency.

As India’s banking sector continues to evolve in response to digital innovation and expanding financial inclusion, such legislative interventions will play a critical role in ensuring systemic resilience, fostering public trust, and supporting long-term economic growth.

  1. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2198614&reg=3&lang=1 ↩︎