Description

The Banking Laws (Amendment) Act, 2025 officially came into force on 1 August 2025, introducing significant reforms to India’s banking framework. These amendments modernise decades-old provisions, aiming to strengthen governance, safeguard depositors, and improve audit quality across the banking sector.

Scope And Notification

The legislation introduces 19 amendments across five key banking laws:

• 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) Acts of 1970 and 1980

The Central Government officially notified several provisions in the Official Gazette in July 2025, setting 1 August 2025 as the implementation date for core changes.

Redefining ‘Substantial Interest’

A major update is the increase in the ‘substantial interest’ threshold from ?5 lakh (set in 1968) to ?2 crore. This figure determines who qualifies for bank directorship eligibility. The revision reflects present-day financial realities, ensuring that only stakeholders with meaningful investments can influence bank management and decision-making.

Changes To Cooperative Bank Director Tenures

The Act aligns cooperative banks with the 97th Constitutional Amendment by extending the maximum tenure for directors (excluding chairpersons and whole-time directors) from 8 years to 10 years. This is designed to enhance stability and continuity in leadership at cooperative banks.

Transfer Of Unclaimed Amounts To IEPF

Public Sector Banks (PSBs) can now transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF). This harmonises PSB practices with those under the Companies Act, improving the handling of dormant accounts and ensuring better protection for investors.

Strengthening Statutory Audit Systems

The reforms authorise PSBs to directly remunerate statutory auditors, enabling the recruitment of highly skilled audit professionals. This change is expected to enhance audit quality, bolster financial transparency, and reinforce accountability in public sector banks.

Streamlined Reporting To RBI

The Act revises the reporting framework for banks to the Reserve Bank of India (RBI). Instead of weekly submissions (every Friday), reporting will now take place on the last day of the fortnight, month, or quarter, easing compliance burdens while maintaining regulatory oversight.

Legislative Timeline

The amendment bill was introduced in August 2024 but faced delays in debate. It passed the Lok Sabha in December 2024, received Rajya Sabha approval in March 2025 with amendments, and secured final Lok Sabha clearance in April 2025, officially becoming law.

This sweeping reform marks a pivotal shift in India’s banking legislation, creating a more modern, transparent, and investor-friendly financial system.

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