Key Banking Law Changes To Take Effect On 1 Aug

(MENAFN- Live Mint) Key provisions of the Banking Laws (Amendment) Act, 2025 including higher threshold for substantial interest, will come into effect on 1 August, the finance ministry said.

The amended legislation aims to enhance bank governance, safeguard depositors and investors, improve audits at public sector banks, and increase the tenure of directors (other than the chairperson and whole-time directors) in cooperative banks.

The Banking Laws (Amendment) Act, 2025 was notified on 15 April 2025, containing a total of 19 amendments across five legislations-the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949,State Bank of India Act, 1955 and Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980.

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The central government had notified 1 August 2025 as the date on which the provisions of certain sections would come into force.

Some of these include implementation of enhanced threshold for directorship in cooperative banks. The amendment redefined 'substantial interest' for directorships, which increased to ₹2 crore instead of the current limit of ₹5 lakh, which was fixed almost six decades ago.

Further, these provisions in the law align director tenures in cooperative banks with the 97th Constitutional Amendment by increasing the maximum tenure from 8 years to 10 years (excluding the chairperson and whole-time director).

Permission to transfer

Also, PSBs will now be permitted to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF), bringing them in line with practices followed by companies under the Companies Act. The amendments also empower PSBs to offer remuneration to statutory auditors, facilitating the engagement of high-quality audit professionals and enhancing audit standards.

The implementation of these provisions marks a significant step towards strengthening the legal, regulatory, and governance framework of the Indian Banking Sector, the finance ministry statement said.

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The proposed changes in banking laws also revises the reporting dates for the submission of statutory reports by banks to the Reserve Bank of India from reporting every Friday to the last day of the fortnight, month or the quarter.

The announcement about amending the Banking Regulation Act was made by the Finance Minister in the 2023-24 Budget speech. In fact the bill was first introduced on August 9, 2024 but could not be taken up for discussion and passage then. The Lok Sabha cleared the bill in December, 2024 while Rajya Sabha approved it with few amendments made by it on March 26. The Lok Sabha then approved it in April turning the bill into a law.

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