Context: Recently, the Banking Laws (Amendment) Bill, 2024 was introduced in Lok Sabha seeking to increase the option for nominees per bank account to four, from existing one, among others.

Rationale of Introducing Bill

• The introduction of Banking Laws (Amendment) Bill, 2024 follows the announcement during the 2023-24 Budget speech, emphasising the need for reforms in the banking sector to strengthen governance and safeguard investor interests.

• The proposed amendments align with the government’s larger vision of facilitating banking sector reforms, including the privatisation of public sector banks. 

• The Banking Laws (Amendment) Bill, 2024, seeks to amend several laws, including the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.

• Its primary goal is to enhance governance, strengthen investor protection, and improve overall banking practices.

Proposed Amendments

• Nominees per Bank Account: Currently, each bank account can have only one nominee. However, the proposed amendment aims to increase this limit to four nominees per account.

• It offers greater flexibility and choice to account holders.

• Redefining ‘Substantial Interest’: The bill seeks to redefine the concept of ‘substantial interest’ for bank directorships. The existing threshold of Rs 5 lakh will be raised significantly to Rs 2 crore.

• It reflects a long-overdue adjustment to a limit that has been in place for nearly six decades.

• Flexibility in Statutory Auditor Pay (Autonomy for Banks): The bill intends to give banks greater flexibility in determining the pay for statutory auditors.

• It recognises the importance of robust auditing practices in maintaining financial stability and transparency within the banking sector.

• Tenure of directors of co-operative banks: The Banking Regulation Act, 1949 prohibits the director of a bank (except its chairman or whole-time director) to hold office for more than eight years consecutively.

• The Bill of 2024 seeks to increase this period to 10 years for co-operative banks.

• Reporting Dates: The bill proposes a shift in reporting dates for regulatory compliance. Instead of the current schedule (second and fourth Fridays of each month), the new reporting dates would be the 15th and last day of every month.

• Broader Reforms: These changes are part of a broader effort to improve bank governance and investor protection.

• The amendments also impact the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.

Conclusion

• The Banking Laws (Amendment) Bill, 2024 represents a significant step toward modernising India’s banking framework. 

• By increasing nominee options, redefining substantial interest, and granting more autonomy to banks, the bill aims to create a more robust and investor-friendly banking ecosystem.