The Banking Laws (Amendment) Act, 2025

Introduction: Strengthening the Financial Pulse of Digital India

The Central Government has announced the Banking Laws (Amendment) Act, 2025, a major step towards modernising India’s financial infrastructure. The Reserve Bank of India Act of 1934 and the Banking Regulation Act of 1949 are two of the five fundamental acts that this legislation modifies. The Act establishes a depositor-first, transparent, and effective banking framework appropriate for a $5 trillion economy in order to bring India’s banking system in line with modern economic realities and quick technology improvements. To facilitate a smooth adoption process, the requirements were announced in a staged rollout, with the first stage pertaining to governance norms being implemented on August 1, 2025, and the second stage concentrating on depositor-facing modifications being implemented on November 1, 2025.

What Is the Banking Laws (Amendment) Act, 2025?

The Banking Laws (Amendment) Act, 2025, is a comprehensive reform that aims to update the regulatory standards for cooperative banks, public sector banks (PSBs), and banking firms. It aims to eliminate outdated standards, lessen the stress of manual reporting, and make banking easier for the average person. Strengthening governance standards and improving depositor protection are the Act’s main goals. The Act attempts to reduce unclaimed deposits and simplify banking operations by streamlining succession procedures, enhancing audit quality in PSBs, and guaranteeing consistency in regulatory reporting.

Key Features of the Banking Laws (Amendment) Act, 2025

The updated nomination system, which directly addresses the problem of unclaimed deposits, is one of the Act’s most important modifications. Depositors can now designate up to four people for their accounts and safety lockers, giving them more flexibility. Both “Successive Nominations,” which establish a chain of succession to avoid conflicts in the event of a nominee’s death, and “Simultaneous Nominations,” which allow depositors to assign particular percentages to several nominees, are supported by this system.

The Act redefines “substantial interest” in terms of governance by increasing the threshold from ₹5 lakh in 1968 to ₹2 crore. This modification ensures that governance requirements stay reasonable by taking inflation and current economic values into account. In order to promote democratic stability, the Act further changes cooperative banks by raising the maximum term for directors (apart from the Chairperson and full-time directors) from eight to ten years, in accordance with the 97th Constitutional Amendment.

The legislation also grants Public Sector Banks (PSBs) critical audit improvements. PSBs can now independently choose the remuneration of their auditors, a move intended to recruit top-tier auditing specialists and improve overall audit quality. Furthermore, PSBs can now contribute unclaimed shares, interest, and bond redemption sums to the Investor Education and Protection Fund (IEPF), aligning with private sector norms. On the operational level, the Act improves process efficiency by moving statutory reporting dates from the outdated “Last Friday” method to the final day of the month or fortnight, aligning regulatory reporting with actual accounting cycles and decreasing manual labour.

Benefits and Conclusion

The Banking Laws (Amendment) Act of 2025 provides distinct benefits by making the banking system more depositor-centric. The new nomination rules simplify claim settlements for families, greatly eliminating the requirement for legal succession certificates and judicial action. The transfer of unclaimed monies to the IEPF improves transparency and use of dormant assets, and aligning reporting dates improves operational simplicity and compliance. Finally, this Act provides a vision for a secure and inclusive banking system, strengthening the legislative framework to boost public confidence and prepare India’s banking sector for the next stage of growth.