The Lok Sabha passed the Banking Laws Amendment Bill, 2024, the first Bill of the Winter Session in December 2024. The Banking Laws Amendment Bill 2024, aims to enhance governance and regulatory oversight in India’s banking sector by amending key statutes. Read here to learn more.
The Banking Laws Amendment Bill, 2024, passed in Lok Sabha, proposed changes like allowing up to four nominees for bank accounts and redefining ‘substantial interest’ thresholds.
It aims to simplify fund distribution after an account holder’s death and improve bank governance, as mentioned in the 2023-24 Budget speech.
Banking laws Amendment Bill 2024
The Banking Laws (Amendment) Bill 2024, aims to enhance governance and regulatory oversight in India’s banking sector by amending key statutes such as the Reserve Bank of India Act (1934), the Banking Regulation Act (1949), and the State Bank of India Act (1955).
The bill seeks to modernize banking regulations in response to evolving economic needs and inflation adjustments.
- Nomination Expansion: Customers can now nominate up to four individuals for bank accounts, lockers, and articles in safe custody, compared to the previous single nominee limit.
- Simultaneous nomination: The Bill permits depositors to opt for either simultaneous nomination, where nominees are assigned specific percentage shares, or successive nomination, where nominees inherit in a predefined order. This change is expected to make fund access smoother for families while also reducing procedural delays.
- Definition of Substantial Interest: The threshold for “substantial interest” in a bank has increased from ₹5 lakh to ₹2 crore, reflecting inflation adjustments over decades.
- Audit and Governance Improvements: Banks are granted more flexibility in auditor remuneration, and reporting dates have shifted to the 15th and last day of each month instead of the second and fourth Fridays.
- Unclaimed Assets: Unclaimed dividends and shares will be transferred to the Investor Education and Protection Fund (IEPF), in alignment with provisions under the Companies Act, 2013.
- Cooperative Bank Governance: The bill extends the tenure for directors in cooperative banks (excluding chairpersons) to 10 years from the previous limit of 8 years.
Banking laws in India
India’s banking sector operates under a robust legal framework designed to regulate, supervise, and facilitate smooth banking operations. Below are the key laws governing the banking industry:
The Reserve Bank of India Act, 1934
Establishes the Reserve Bank of India (RBI) as the central bank of the country, with a primary role in regulating and supervising banks.
- Monetary Policy Control: RBI’s authority to control money supply and inflation.
- Issuance of Currency: Sole authority to issue currency notes in India (except coins).
- Regulation of Financial Institutions: Supervises banks, NBFCs, and payment systems.
- Lender of Last Resort: Provides liquidity support to banks in distress.
- Foreign Exchange Management: Regulates forex markets through the FEMA (Foreign Exchange Management Act, 1999).
The Banking Regulation Act, 1949
Regulates banking companies and cooperative banks, ensuring sound banking practices and financial stability.
- Definition of Banking: Defines what constitutes banking activities (accepting deposits, lending, etc.).
- Licensing: RBI’s authority to issue licenses to banks.
- Capital Requirements: Prescribes minimum capital and reserves for banks.
- Corporate Governance: Guidelines on management, board composition, and removal of directors.
- Winding Up of Banks: Procedures for the merger, amalgamation, or winding up of banking institutions.
The State Bank of India Act, 1955
Establishes the State Bank of India (SBI) as the principal agent of the RBI and the largest public sector bank.
- Functions of SBI: Acts as a banker to the government and performs general banking functions.
- Subsidiaries: Framework for the establishment and management of SBI subsidiaries.
- Capital Structure: Rules governing SBI’s share capital and financial operations.
The Negotiable Instruments Act, 1881
Governs promissory notes, bills of exchange, and cheques, ensuring their validity and enforceability.
- Negotiability: Establishes the transferability of negotiable instruments.
- Dishonour of Cheques: Penalties and legal recourse for dishonour due to insufficient funds.
- Endorsements and Payments: Rules for endorsements, payments, and liabilities.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002
Facilitates the recovery of bad loans by banks and financial institutions without court intervention.
- Asset Reconstruction: Allows creation of Asset Reconstruction Companies (ARCs).
- Seizure of Assets: Empowers lenders to seize and sell secured assets to recover dues.
- NPA Management: Focuses on speedy recovery of Non-Performing Assets (NPAs).
The Insolvency and Bankruptcy Code (IBC), 2016
Provides a unified framework for resolving insolvency for individuals, companies, and partnerships.
- Time-bound Resolution: Mandates resolution of insolvency within 180 to 270 days.
- Insolvency Professionals: Establishes roles for Insolvency Resolution Professionals (IRPs).
- Creditor Empowerment: Empowers creditors to initiate insolvency proceedings.
The Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980
Nationalized 14 major banks in 1970 and six more in 1980 to align banking with economic development goals.
- Public Ownership: Transferred ownership and control of banks to the government.
- Social Objectives: Mandated priority sector lending and financial inclusion.
Other Notable Banking Laws and Regulations:
- Foreign Exchange Management Act (FEMA), 1999: Regulates foreign exchange transactions.
- Prevention of Money Laundering Act (PMLA), 2002: Enforces anti-money laundering measures.
- Payment and Settlement Systems Act, 2007: Regulates payment systems like UPI, NEFT, and RTGS.
- RBI’s Prudential Norms: Capital adequacy, asset classification, and provisioning guidelines.
Conclusion
India’s banking laws provide a comprehensive regulatory framework that ensures the banking system’s stability, integrity, and efficiency. The RBI plays a pivotal role in enforcing these laws, promoting financial inclusion, and safeguarding depositor interests.
The bill has generated some debate, particularly regarding cooperative banking governance, with opposition arguing that state governments should have more control over cooperative societies.
However, the government clarified that the amendments focus solely on banking regulation and do not infringe on state powers over cooperative societies.
Frequently Asked Questions (FAQs)
Q. What banking laws are being amended in 2024?
Ans: A total of 19 amendments are being put forth to update various Acts including 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.
Q. What is KYC in banking?
Ans: KYC stands for “Know Your Customer.” It is a process by which banks obtain information about customers’ identities and addresses to help ensure that banks’ services are not misused.
Related articles:
- Indian Financial System
- History of Banking in India
- Money laundering and its prevention
- Trends and Progress of Banking in India 2023-24
-Article by Swathi Satish
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