About Banking Laws (Amendment) Bill, 2024
Banking Laws (Amendment) Bill, 2024
Context
The Banking Laws (Amendment) Bill, 2024 was recently introduced in the Lok Sabha. It proposes crucial reforms in India’s banking legislation, focusing on governance, transparency, depositor protection, and modernization of banking norms.
Objective of the Bill
The bill seeks to:
- Strengthen governance in public sector and cooperative banks.
- Improve reporting mechanisms and consistency to the Reserve Bank of India (RBI).
- Enhance protection for depositors and investors.
- Improve audit quality in Public Sector Banks (PSBs).
- Allow increased flexibility in nominations and corporate governance.
Key Provisions
| Provision | Description |
|---|---|
| Nominee Flexibility | Allows up to four nominees per bank account and locker. |
| Successive and Simultaneous Nominations | Permits both options — multiple nominees simultaneously or in succession. |
| Shareholding Threshold for Directorship | Raises the threshold of shareholding from ₹5 lakh to ₹2 crore to determine substantial interest for bank directorships. |
| Tenure of Directors in Cooperative Banks | Extends tenure from 8 years to 10 years (excluding Chairperson and Whole-time Director). |
| Unclaimed Financial Instruments | Unclaimed dividends, shares, interest, or bond redemptions to be transferred to the Investor Education and Protection Fund (IEPF). |
| Amendments to Laws | Modifies major statutes such as: |
- RBI Act, 1934
- Banking Regulation Act, 1949
- State Bank of India Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 |
Significance of the Bill
1. Governance and Oversight
- Redefines criteria for directorship, making it more professional and conflict-free.
- Strengthens corporate governance, especially in cooperative banks.
2. Depositor and Investor Protection
- Ensures clear succession planning through nominations.
- Secure mechanism for retrieval of unclaimed investments via the IEPF.
3. Financial Inclusion & Transparency
- Improved nomination processes promote ease of access for rural and aging populations.
- Better audit quality in PSBs ensures transparency and accountability.
4. Legal Modernization
- Updates legacy laws to align with modern banking practices and technological advancements.
Banking Sector Overview (For Background Understanding)
1. Structure of Indian Banking Sector
- India has a diverse financial ecosystem comprising:
- 137 Scheduled Commercial Banks
- Cooperative and Local Area Banks
- Around 9,516 NBFCs and All India Financial Institutions (AIFIs)
2. Rural Penetration
- Banking Correspondents and outlets ensure 99.97% village coverage, promoting rural inclusion.
Categories of Banks in India
| Category | Details |
|---|---|
| Scheduled Commercial Banks (SCBs) | Listed in Second Schedule of the RBI Act, 1934; minimum capital requirement: ₹5 lakh; prioritizes depositor interest. |
| Public Sector Banks (PSBs) | Under SBI Act (1955) & Acquisition Acts (1970/80); 12 existing PSBs. |
| Private Sector Banks | Licensed under the Banking Regulation Act, 1949. |
| Foreign Banks | Operate in India under RBI rules; HQ outside India. |
| Regional Rural Banks (RRBs) | Established by Narasimham Working Group (1975); governed under RRB Act, 1976; focus on agriculture and rural credit. |
| Small Finance Banks (SFBs) | Target underserved segments — small businesses, farmers. |
| Payment Banks | Limited to accepting demand deposits, payments, and remittances. Not allowed to lend. |
Investor Education and Protection Fund (IEPF)
- Established under the Companies Act, 2013.
- Purpose: Protect investors’ interests by managing unclaimed funds.
- Role expanded by this Bill to include unclaimed financial instruments from banks.
Mains Relevance: GS Paper III – Indian Economy
Challenges in the Banking Sector Addressed by the Bill
- Inadequate succession and nomination systems.
- Opaque governance in cooperative banks.
- Low audit quality and accountability in PSBs.
- Delays in unclaimed deposits/investments.
Impact
- Improved depositor confidence.
- Better integration of cooperative banks into the formal financial framework.
- Enhanced legal and regulatory compliance across institutions.
Conclusion
The Banking Laws (Amendment) Bill, 2024 is a progressive step toward modernizing banking governance, protecting financial stakeholders, and streamlining regulatory frameworks. Its effective implementation can significantly boost the credibility, resilience, and inclusiveness of India’s banking ecosystem.
Prelims Pointers
- Banking Laws (Amendment) Bill, 2024 allows how many nominees per account? → Up to 4
- IEPF is governed under which Act? → Companies Act, 2013
- Threshold for substantial shareholding raised to? → ₹2 crore
- Tenure of cooperative bank directors extended to? → 10 years