On 15th April 2025, the Banking Laws (Amendment) Act, 2025 received the assent of the President, marking a watershed moment in India’s banking history. This amendment significantly changes several foundational banking statutes, 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.
The amendments are part of an ongoing effort to streamline and modernise the regulatory framework governing India’s banking sector. The changes address a range of issues, from the handling of unclaimed deposits to the governance of banking institutions, aiming to enhance operational efficiency, transparency, and regulatory oversight.
These revisions come at a time when India’s banking sector is undergoing digital transformation, and the need for updated and stronger laws has never been greater. As the economy becomes more digitally connected, ensuring that banking laws adapt to meet new challenges is crucial for maintaining stability and fostering growth.
Key Highlights Of The Banking Laws (Amendment) Act, 2025
The Banking Laws (Amendment) Act, 2025, brings forward several significant amendments aimed at refining and modernising India’s banking landscape. The changes affect various critical acts, 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. Below is an overview of the amendments.
1. Amendment to the Reserve Bank of India Act, 1934
- Fortnight Definition:
- The definition of “fortnight” has been updated to mean the period from the 1st to the 15th day of each calendar month, or from the 16th to the last day of the month. This clarification will standardise timelines for operational activities, enhancing consistency across financial operations.
- Operational Timelines:
- The amendment replaces the term “alternate Friday” with “last day of each fortnight”, streamlining how banking operations are scheduled. This update also changes the previous reference to “seven days” for operational timelines, reducing it to “five days” for certain compliance activities, improving operational efficiency.
- The amendment replaces the term “alternate Friday” with “last day of each fortnight”, streamlining how banking operations are scheduled. This update also changes the previous reference to “seven days” for operational timelines, reducing it to “five days” for certain compliance activities, improving operational efficiency.
2. Amendment to the Banking Regulation Act, 1949
- Minimum Capital Requirement:
- The minimum capital required for certain banking activities has been increased significantly from five lakhs of rupees to two crore rupees or an amount notified by the Central Government in the Official Gazette.
- Directorial Tenure in Cooperative Banks:
- The amendment revises the tenure for directors of cooperative banks. Directors can now serve up to ten years, extending the previous limit of eight years. This is aimed at fostering stability in management at cooperative banks.
- Nomination Changes:
- Multiple Nominees:
- The Act now allows up to four nominees to be nominated for a single account or deposit. If more than one nominee is chosen, the proportion of the share for each nominee must be specified.
- In the event of a nominee’s death, the nomination for that individual becomes invalid, and the remaining shares will be redistributed according to the remaining valid nominees.
- Successive and Simultaneous Nominations:
- The Act distinguishes between successive and simultaneous nominations.
- Successive nominations will take effect in a specified order, starting with the first nominee. If the first nominee is no longer available, the next in line will take precedence, and so on.
- Simultaneous nominations require that the proportionate share of the amount be stated explicitly. Each of the nominees’ shares will be paid out in the proportions specified by the account holder.
- If the account holder does not specify proportions, the nomination will be rendered invalid.
- Nomination for Locker Holders:
- When it comes to lockers, the Act now allows up to four nominees for a single locker. The proportion of access to the locker’s contents can be specified for each nominee. In case the locker holder dies, the nominees will gain access according to the order of priority.
- When it comes to lockers, the Act now allows up to four nominees for a single locker. The proportion of access to the locker’s contents can be specified for each nominee. In case the locker holder dies, the nominees will gain access according to the order of priority.
- Multiple Nominees:
3. Amendment to the State Bank of India Act, 1955
- Unclaimed Funds and Dividends:
- In line with the reforms, the State Bank of India Act, 1955 requires that unclaimed dividends, unpaid money, and unclaimed shares be transferred to the Investor Education and Protection Fund (IEPF) after seven years.
- This ensures better accountability and ensures that dormant funds are handled in a transparent manner. Shareholders can claim their unpaid dividends or funds from the IEPF.
- Auditor Remuneration:
- The Act has been amended to align with the Companies Act, 2013, with the State Bank now required to fix auditor remuneration according to the guidelines of the modern regulatory framework.
- The Act has been amended to align with the Companies Act, 2013, with the State Bank now required to fix auditor remuneration according to the guidelines of the modern regulatory framework.
4. Amendment to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980
- Unclaimed Funds:
- Similar to the provisions in the State Bank of India Act, unclaimed funds from acquired banks will now be transferred to the Investor Education and Protection Fund after seven years.
- Simplified Dividend Procedures:
- Unpaid dividends, shares, and other forms of unpaid money must be transferred to the IEPF, ensuring that dormant assets are properly managed and that no assets remain unaccounted for.
- Unpaid dividends, shares, and other forms of unpaid money must be transferred to the IEPF, ensuring that dormant assets are properly managed and that no assets remain unaccounted for.
5. Nomination and Inheritance Changes
- Multiple Nominees (Up to Four):
- A critical change introduced is the maximum number of nominees allowed. The law now permits the nomination of up to four individuals, either successively or simultaneously.
- For successive nominations, the order of priority must be clear. The first nominee will be given precedence, followed by the second nominee if the first one passes away, and so on.
- For simultaneous nominations, the proportions of the total amount each nominee is entitled to must be clearly stated. If this proportion is not specified, the nomination will be considered invalid.
- Locker Nomination Provisions:
- In the case of locker holders, a depositor can nominate up to four individuals. The proportion of the locker’s contents assigned to each nominee must be stated explicitly. If a nominee passes away before accessing the locker, the rights to that portion will lapse, and the remaining nominees will take precedence.
- The nomination rules for lockers mirror those for deposits, ensuring clarity in the event of the locker holder’s death.
- Changes to Nomination Inheritance:
- In case of multiple nominees, the priority follows a clear order of succession:
- The first nominee’s right is activated if they survive the account holder(s).
- If the first nominee passes away, the second nominee’s rights will come into play, followed by the third, and so on. This systematic order eliminates confusion over the rights of the nominees and ensures clarity regarding the inheritance of banking assets.
- In case of multiple nominees, the priority follows a clear order of succession:
6. Other Key Amendments
- Operational Days and Terms:
- The amendment also introduces changes in operational days: references to alternate Fridays have been replaced with the last day of the fortnight, ensuring consistency in banking practices.
- Cooperative Bank Management:
- The amendment permits directors of central cooperative banks to be elected to the boards of state cooperative banks where they are members, enhancing governance and cooperation between institutions.
- Simplification of Procedures:
- There are several provisions aimed at simplifying operational and procedural requirements for banks, particularly in relation to unclaimed funds and handling shares, ensuring smoother transactions and compliance with modern financial regulations.
When Will The New Banking Law Amendments Come Into Effect?
The Banking Laws (Amendment) Act, 2025, is set to be implemented in phases. While the Act received Presidential assent on 15th April 2025, its provisions will come into force on a date to be notified by the Central Government.
As stated in the Act, different provisions of the amendment will come into force on different dates. This means that while some provisions will take effect immediately, others may be implemented over time, based on the requirements and readiness of the regulatory authorities, financial institutions, and businesses involved.
It is important to note that once the provisions come into force, any reference in the Act to its commencement will refer to the specific dates when each provision is activated.
What Does This Mean for Banks and Consumers?
For banks, the implementation of the Act will require them to update their operational procedures to reflect the changes in nomination rules, fund management, and governance structures. Banks will need to ensure that their systems and customer interactions align with the new provisions, such as the acceptance of multiple nominees and the transfer of unclaimed funds to the Investor Education and Protection Fund (IEPF).
For consumers, this phased implementation means they will need to stay informed about the changes, especially regarding nominee designations, unclaimed funds, and any updates to their banking accounts or lockers. Consumers should expect communication from their banks regarding these changes and may be required to update their account details to comply with the new rules.
The Central Government will issue a notification in the Official Gazette specifying the exact dates for the commencement of these provisions. Once the notifications are issued, the banking sector will be fully equipped to implement the changes as per the new legal framework.
To ensure you’re fully prepared for these changes, it’s crucial to:
- Review your banking accounts: Check the nomination details, ensure you have named sufficient nominees, and update your personal information if needed.
- Stay informed: Keep an eye out for notifications from your bank regarding implementation dates and necessary actions on your part.
- Engage with your bank: If you have any questions about how the amendments will affect your accounts, do not hesitate to reach out to your financial institution for clarity.
Conclusion
The Banking Laws (Amendment) Act, 2025, is a clear sign that India’s banking sector is evolving to meet modern challenges and global standards. By understanding and adapting to these new laws, you can ensure that your financial dealings remain secure, efficient, and compliant.
