Why in the News?

The Lok Sabha passed the Banking Laws (Amendment) Bill, 2024, marking the first legislative achievement of the Winter Session after a week-long deadlock. The Bill, introduced by Finance Minister Nirmala Sitharaman, was passed via a voice vote.

What’s in Today’s Article?

• Introduction (Context)
• Banking Laws (Amendment) Bill, 2024 (Major Provisions of the Bill)

Introduction:

• The Banking Laws (Amendment) Bill, 2024, introduced in the Lok Sabha in August 2024, aims to amend multiple banking-related laws to streamline operations and modernize regulations. It amends the following Acts:
  • Reserve Bank of India (RBI) Act, 1934
  • Banking Regulation Act, 1949
  • State Bank of India Act, 1955
  • Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980

Key Amendments & Provisions of Banking Laws (Amendment) Bill, 2024:

• Redefinition of "Fortnight" for Cash Reserves:
  • Current Definition:
    • A fortnight is defined as Saturday to the second following Friday (14 days).
  • New Definition:
    • From the 1st to the 15th of each month, or
    • From the 16th to the last day of the month.
  • Impact: This change affects how both scheduled and non-scheduled banks maintain cash reserves with the RBI.
• Tenure of Directors in Co-operative Banks:
  • Existing Rule: Directors (other than the chairman or whole-time director) cannot serve more than 8 consecutive years.
  • New Rule: Extends the tenure to 10 consecutive years for co-operative banks.
• Exemption for Common Directors in Co-operative Banks:
  • Current Rule: A director of one bank cannot serve on the board of another bank, except for RBI-appointed directors.
  • Amendment: Allows directors of central co-operative banks to also serve on the board of a state co-operative bank where they are a member.
• Increase in Threshold for Substantial Interest in Companies:
  • Existing Threshold: Substantial interest in a company is defined as holding shares worth more than ₹5 lakh or 10% of the company’s paid-up capital, whichever is lower.
  • New Threshold: Raises this to ₹2 crore. The government may modify this amount through notifications.
• Nomination Rules for Deposits and Lockers:
  • Current Provision: A single or joint deposit holder can appoint one nominee.
  • New Provision:
    • Allows up to four nominees.
    • For Deposits: Nominees can be named simultaneously or successively. In simultaneous nominations, the share is divided proportionally.
    • For Lockers and Articles in Custody: Successive nominations can be made, with priority based on the order of nomination.
• Settlement of Unclaimed Amounts:
  • Current Rule: Unpaid or unclaimed dividends are transferred to the Investor Education and Protection Fund (IEPF) after seven years.
  • Amendment:
    • Expands the scope to include:
    • Shares with unclaimed dividends for seven consecutive years.
    • Unpaid interest or redemption amounts for bonds for seven years.
    • Allows claimants to retrieve shares or funds transferred to the IEPF.
• Auditor Remuneration:
  • Existing Rule: The RBI, in consultation with the central government, fixes auditors' remuneration.
  • Amendment: Empowers banks to independently decide the remuneration for their auditors.

Key Takeaways:

• The Banking Laws (Amendment) Bill, 2024 introduces critical changes to enhance banking governance, improve efficiency, and protect customer interests.
• These include:
  • Simplifying regulatory frameworks for cash reserves and director tenures.
  • Providing flexibility in nominations and addressing unclaimed funds.
  • Empowering banks to determine auditor fees.
  • Strengthening the co-operative banking system through revised rules for directors and substantial interest thresholds.