The Banking Laws (Amendment) Bill 2024

Posted On - 18 September, 2024 • By - Clayon Lopes

Introduction:-

The Banking Laws (Amendment) Bill 2024 was presented in the Lok Sabha by Union Minister of State for Finance Pankaj Choudhary on August 9, 2024. This bill brings significant changes to the banking sector, focusing on improving financial stability, enhancing consumer protection, and increasing regulatory efficiency. It is designed to address current challenges and update regulations to better suit modern banking practices. This analysis delves into the key provisions of the bill and their potential impacts. Additionally, the bill will affect several major laws, including the Reserve Bank of India Act 1934, the Banking Regulation Act 1949, the State Bank of India Act 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts 1970 and 1980

Major changes that will impact the consumers and banks:-

  • [1]The bill aims to increase the option for nominees per bank account to four from the existing one nominee among others.
  • Another amendment involves redefining ‘substantial interest’ for directorships, potentially raising the threshold from the current ₹5 lakh, set nearly 60 years ago, to ₹2 crore.
  • In addition, the Bill aims to give banks more flexibility in determining the pay for statutory auditors.
  • It also proposes changing the regulatory reporting dates for banks to the 15th and last day of each month, replacing the current second and fourth Fridays.
  • Approved by the Union Cabinet, the Bill seeks to amend several laws, including the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.

1. Expansion of Nominee Options

  • Current Status: [2]Traditionally, bank accounts have allowed only one nominee as per the section 45ZA of the Banking Regulation Act 1949 limiting flexibility in managing account-related succession planning.
  • New Provision: The bill proposes increasing the number of nominees per bank account from one to four. This change is designed to simplify the process of transferring account ownership and ensure that multiple beneficiaries can be designated. It reflects an understanding of modern banking needs and the complexity of family and financial arrangements.
  • Implications: This amendment will provide greater flexibility and security for account holders, ensuring that their assets can be efficiently and equitably distributed among multiple beneficiaries.

2. Redefining ‘Substantial Interest’ for Directorships

  • Current Threshold: The definition of ‘substantial interest’ for holding directorships in banks is currently set at ₹5 lakh as per section 5 (ne) of the Banking Regulation Act 1949. This figure has been in place for nearly 60 years, leading to a potential misalignment with current financial realities.
  • Proposed Change: The bill suggests raising the threshold to ₹2 crore. This substantial increase aims to better reflect contemporary financial standards and reduce the number of individuals considered to have a ‘substantial interest,’ thereby tightening eligibility criteria for directorships.
  • Implications: By adjusting the threshold, the bill seeks to ensure that individuals with significant financial stakes have a more pronounced impact on banking governance, potentially enhancing the quality of bank oversight.

3. Flexibility in Statutory Auditor Compensation

  • Current Practice: [3]Statutory auditors’ compensation is currently regulated under strict guidelines as per section 41 of the State Bank of India Act 1955 which may not always reflect market conditions or the specific needs of individual banks.
  • Proposed Amendment: The bill provides banks with greater flexibility in determining the compensation for statutory auditors. This change aims to align auditor pay with industry standards and the unique requirements of each bank.
  • Implications: Increased flexibility in auditor compensation could attract higher-quality auditing services and ensure that compensation structures are competitive and fair, benefiting both banks and the auditing profession.

4. Adjustment of Regulatory Reporting Dates

  • Current Reporting Dates: Banks are currently required to submit regulatory reports on the second and fourth Fridays of each month as per the subsisting Acts namely section 18, 24, 25 and 56 of the Banking Regulation Act 1949 and section 42 of the Reserve Bank of India Act 1934.
  • Proposed Change: The bill proposes shifting these reporting dates to the 15th and the last day of each month. This change aims to streamline reporting schedules and improve the timeliness and accuracy of data submission.
  • Implications: Aligning reporting dates with standard calendar months can simplify compliance, reduce administrative burden, and provide regulators with more timely information for monitoring and oversight.

5. Comprehensive Legislative Amendments

  • Legislative Impact: [4]The bill seeks to amend several key banking laws, including:
  • 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
  • Objective: These amendments are designed to modernize and harmonize regulations across various aspects of banking operations, governance, and oversight, ensuring that the legal framework supports contemporary banking practices and challenges.
  • Implications: The broad scope of these amendments signifies a major overhaul of the banking regulatory environment, aimed at enhancing efficiency, accountability, and adaptability within the sector.

Conclusion

[5]The Banking Laws (Amendment) Bill 2024 introduces several significant changes intended to modernize the banking sector, improve regulatory practices, and enhance consumer protections. From expanding nominee options to redefining directorship criteria and adjusting reporting schedules, these amendments reflect a strategic shift towards a more flexible and responsive banking environment. Stakeholders, including banking professionals and consumers, should stay informed about these changes and their potential impacts on the financial ecosystem.