Revamping India’s Banking Framework: An Overview of the 2025 Amendments

The recently passed Banking Laws (Amendment) Act, 2025 brings important changes aimed at improving governance, compliance, and operational clarity in the banking sector. These updates focus on key areas like the criteria for bank directorships, reporting timelines, and nominee rules for deposit accounts.

1. Redefining Substantial Interest for Bank Directorships 

One major change in the amendment is the new definition of “substantial interest” for eligibility in bank directorships. Under the old rules, an individual (or their spouse or minor child) was considered to have substantial interest if their beneficial shareholding was over ₹5 lakhs or 10% of paid-up capital, whichever was less. The new law raises this limit to ₹2 crores or 10% of paid-up capital.

Positive Implications:

Increasing the substantial interest threshold is generally viewed as a positive move. It ensures that only serious and financially committed shareholders can join the board, strengthen governance and reduce the chances of mismanagement. Since banks are crucial for economic stability, improving board accountability is timely and essential to avoid situations like the 2008 global financial crisis.

Challenges:

Banks must quickly revise their articles of association to meet the new definition, requiring rapid board restructuring and changes in shareholding patterns. This compliance process may need dedicated legal support and cooperation among stakeholders.

2. Redefinition of “Fortnight” for Reporting Purposes 

The law changes the definition of a “fortnight” in banking reporting. Before, fortnightly periods were calculated from Saturday to the next Friday. The amendment now defines these periods as either the 1st to 15th or the 16th to the end of each calendar month.

Advantages:

Aligning fortnightly reporting with calendar dates improves synchronization with standard accounting cycles. This change makes it easier for banks to manage compliance and supports better financial management.

Potential Drawbacks:

Switching to this new reporting schedule requires upgrades to current IT and reporting systems, which could lead to short-term operational issues. Banks may struggle to comply initially unless regulators allow enough time for the transition.

3. Expanding Nomination Rights: Up to Four Nominees Allowed 

One significant change for depositors is the expansion of nomination rights. Previously, accounts were limited to one nominee. The amendment now allows up to four nominees, who can be named at the same time or in order of priority.

Benefits:

This change supports better planning for asset succession, safeguarding depositor interests by allowing multiple legal claimants access to accounts after the depositor’s death. It simplifies the transfer process and lowers the chances of legal disputes, ultimately enhancing customer confidence and service quality.

Implementation Hurdles:

Updating account opening procedures and nominee declaration forms to include multiple nominees will require significant changes in documentation and IT systems. Training staff on the new process and ensuring system readiness will take time and money.

Conclusion

The Banking Laws (Amendment) Act, 2025 represents a positive step in improving the regulatory framework for banks. By strengthening governance standards, aligning reporting cycles with accounting practices, and modernizing nomination rules, the legislation aims to enhance transparency, accountability, and protection for depositors. Although these changes create transition challenges for banks, they are vital for fostering a resilient and well-managed financial sector, which will contribute positively to the overall economy.