On Tuesday, the Lok Sabha passed the Banking Laws (Amendment) Bill, 2024, which was introduced by Union Finance Minister Nirmala Sitharaman.

Amendments are proposed in the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.

Sitharaman explained in the Lower House that "The proposed Bill seeks to improve governance standards, provide consistency in reporting by banks to the Reserve Bank of India, ensure better protection for depositors and investors, improve audit quality in PSBs (public sector banks) and also to increase the tenure of the directors other than the chairman and whole-time directors in cooperative banks."

Proposed Amendments to Nomination Process and Unclaimed Deposits

The Bill, which will now be presented in the Rajya Sabha, proposes amendments to multiple sections of the Banking Regulation Act to increase the number of nominees from one to four.

This change aims to enhance claim processing, offer more flexibility, and simplify the process for legal heirs. Currently, having only one nominee has caused issues, especially when both the nominee and the account or locker holder pass away, leaving the assets without a valid nomination.

"For deposits, successive or (not and) simultaneous nominations are available whereas for articles kept in safe custody or in safety lockers, only successive nominators will be available," the minister said.

Jyoti Prakash Gadia, managing director at Resurgent India, emphasised that unclaimed amounts in banks had reached Rs 78,000 crore as of March 2024, underscoring the need to streamline and expand the settlement mechanism.

"The new provisions on unclaimed deposits will enable smoother handling of such cases, serving the public interest, especially as the volume of unclaimed deposits remains significantly high," he said.

Changes to SBI Act and Banking Companies Act

Another key amendment involves changes to the State Bank of India Act and the Banking Companies Act. These revisions aim to allow the finance ministry to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF).

Currently, public sector banks (PSBs) can only transfer unclaimed dividends to the IEPF. In contrast, private sector banks are required to transfer unclaimed shares, interest, and bond redemption amounts to the IEPF under Sections 124 and 125 of the Companies Act.

This proposed uniformity across the banking sector is expected to simplify the process for individuals to claim refunds from the IEPF, helping protect their financial interests.

Amendments to Reporting Practices and Governance of Cooperative Banks

The Bill also updates the definition of "substantial interest," raising the shareholding threshold from Rs 5 lakh to Rs 2 crore to reflect contemporary economic conditions. Bank reporting practices are also undergoing changes, with the reference date moving from "reporting Friday" to the last day of the fortnight, month, or quarter.

Reports for the 15th of a month will need to be submitted by the 20th, while those for the last day of the month will be due by the 5th of the following month. The Bill also suggests extending the tenure of directors in cooperative banks from the current eight years to 10 years, excluding the chairman and whole-time director.

This change aligns the Banking Regulation (BR) norms with the 97th Amendment to the Constitution, which requires elected board members in cooperative societies to serve a tenure of five years or multiples of five.

Additionally, the Bill proposes allowing directors of central cooperative banks to serve on the board of state cooperative banks. This exemption recognizes the federated structure and the need for such shared directorship to ensure the efficient operation of the cooperative credit system.

Furthermore, the amendments will enable public sector banks (PSBs) to provide competitive compensation to statutory auditors, shifting away from the current system where the RBI and the central government determine the remuneration.