Context:

The Banking Laws (Amendment) Act, 2025 ushers in a major reform package aimed at strengthening governance, transparency, and depositor protection across India’s banking sector. The legislation amends five core banking laws and introduces updated frameworks for both public and cooperative banks.

What Is It?

A wide-ranging amendment law notified by the Ministry of Finance, the Act revises longstanding provisions in Indian banking legislation to improve oversight, enhance audit quality, and align cooperative banking with constitutional requirements.

Key Objectives

• Strengthen governance in public and cooperative banks
• Ensure protection of depositors and investors
• Raise audit standards in public sector banks (PSBs)
• Modernize regulatory thresholds
• Bring cooperative bank regulation in line with constitutional norms

Key Features

1. Revised Definition of ‘Substantial Interest’

• Threshold increased from ?5 lakh to ?2 crore
• Reflects inflation and sectoral growth since the original limit set in 1968

2. Cooperative Bank Director Tenures

• Tenure for board directors (excluding chairpersons and full-time directors) increased from 8 to 10 years
• Complies with the 97th Constitutional Amendment, supporting democratic governance

3. Transfer of Unclaimed Assets to IEPF

• Public Sector Banks can now transfer unclaimed shares, interest, and bond redemptions to the Investor Education and Protection Fund (IEPF)
• Aligns with provisions under the Companies Act, improving financial recycling and transparency

4. Audit Transparency and Independence

• PSBs can independently set statutory auditor remuneration
• Encourages higher audit quality and engagement of top-tier audit firms

5. Streamlined Statutory Reporting

• Reporting frequency to the RBI changed from “every Friday” to end-of-fortnight, month, or quarter
• Reduces operational pressure and improves data relevance

Significance for the Banking Sector

• Modernizes outdated norms: Updates provisions unchanged for over five decades
• Improves accountability in cooperative banks: Supports transparent, democratic processes
• Builds depositor trust: Through better audit systems and protection of unclaimed funds

Source: LM