Decoding the Banking Laws (Amendment) Act, 2025  

The Banking Laws (Amendment) Act, 2025 was introduced by legislation to cater to the needs of new India by modernising the banking system that is now outdated in a way that it fails to include digital necessities that make the process less time taking and limit scope of mistakes. This not only will lead to internal benefits but will help India have a better positioning among her global competitors. 

The new reforms aim to be useful in enhancement of governance, to strengthen the safeguards of depositor and investors, to improve the audit quality in public sector banks and address the shortcomings and vulnerabilities of past failures by banks.  

Below is a detailed analysis of the major aspects of the Amendment. 

1. Legislative Scope and Implementation 

This will act as a transformative step as it amended five cornerstone legislations that define India’s financial architecture: 

1. The Reserve Bank of India Act, 1934 
2. The Banking Regulation Act, 1949 
3. The State Bank of India Act, 1955 
4. The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 
5. The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 

Implementation Timeline: The provisions of the Act were notified in two distinct stages to facilitate smooth adoption: 

• Stage 1 (Effective August 1, 2025): Covered Sections 3 to 5 and 15 to 20 (Governance and Audit reforms). 
• Stage 2 (Effective November 1, 2025): Covered Sections 10 to 13 (Nomination Framework). 

2. Sections 10 to 13- Scope of nomination framework 

A huge amount of funds lies across banks as unclaimed deposits, often because no nominee was recorded. To address this, the Act introduces a depositor-centric framework designed to ensure smoother claim settlements, and provide faster access for families. This will lead to higher customer satisfactions and along with it save a lot of unnecessary delay in settlement of claims. 

A. Increase in Nominees

Depositors now have the flexibility to designate up to four persons as nominees for their bank accounts, deposits, and lockers. 

B. Modes of Nomination

The Act introduces specific facilities to minimize disputes and reduce the need for judicial intervention: 

• Simultaneous Nomination: This allows depositors to nominate multiple persons and allocate the deposit amount among them percentage-wise upto 100% 
• Successive Nomination: This is critical for articles in safe custody and safety lockers. It ensures seamless succession in the event of a nominee’s death by establishing a clear order of precedence.  

3. Governance Reforms 

The Act updates governance norms to reflect inflation, economic growth, and democratic principles. 

A. Redefining ‘Substantial Interest’ (Section 3) 

• Old Rule set the threshold at ₹5 lakh (a limit since 1968). 
• New Rule: has increased the threshold to amount of ₹2 crore. 
• Impact: This regulatory change is designed to revamp governance standards, reflecting the inflation and growth the economy has witnessed over the decades. 

B. Co-operative Bank Governance (Section 4 & 14) 

• Change: The maximum tenure for directors (excluding the Chairperson and whole-time directors) in Co-operative Banks has been increased from 8 years to 10 years. 
• Rationale: This aligns Co-operative banks with the 97th Constitutional Amendment, which mandates democratic governance and elevates the status of co-operatives in the country’s political and economic framework. (Note: Tenure for directors in other banking companies remains unchanged). 

This legislation is a giant leap for the banking sector. We’re finally moving away from those restrictive, “one-size-fits-all” rules and into a structure that makes sense for modern finance. 

Audits & Accountability: PSBs Get Real Authority 

The changes around auditing, especially for Public Sector Banks (PSBs), are pretty significant: 

•  Real Auditor Pay: The old, regulated fee structure for auditors is out. The banks’ boards are now empowered to set the remuneration themselves. Why is this a big deal? Because it lets PSBs compete to hire top-tier professionals. You want better audits? You need to pay for better talent. This is a huge step for improving audit quality. 
• Cleaning Up Unclaimed Funds: The new rule lets PSBs transfer unclaimed funds—shares, interest, and old bond money—to the Investor Education and Protection Fund (IEPF). It sounds technical, but it simply means PSBs are finally aligning with the same transparent rules that all companies follow. It’s about creating a single, clear system for managing forgotten money. 

One of the clunkiest parts of the old system was the reporting schedule. That’s finally fixed! 

• The Problem: Reporting requirements used to revolve around “last Friday” or “alternate Fridays.” That’s an outdated model that caused unnecessary headaches and a ton of manual work. 
• Now, all reporting dates are tied to the 15th and the last day of the month. This instantly aligns the bank’s reporting cycle with its accounting cycle. It reduces manual burnout, makes automation way easier to adopt, and just cleans up the entire system’s efficiency. 

Major Wins for Customers and Governance 

The Act has made some profoundly flexible changes that directly benefit the customer: 

• Nomination Flexibility: This is a big one. Depositors are no longer limited to just one person for a nomination. You can now name up to four people! Likewise, locker nominations have evolved from a simple name to a detailed chain of succession—it’s much clearer for asset transfer now. 
• The New Money: The financial definition of ‘substantial interest’ has been updated to reflect current market values. That threshold for ownership influence has skyrocketed from a trivial ₹5 lakh to a hefty ₹2 crore. It just acknowledges that ₹5 lakh isn’t the same as it was decades ago. 
• Co-op Leadership: Governance tenures for co-operative banks have been extended from eight years to ten years, bringing them up to the constitutional standard. It provides for more stable, long-term leadership. 

This whole package moves banking from a single, restrictive road to a multi-lane highway of flexible, modern options. 

That’s a perfect request for making sense of the changes! The recent Banking Laws (Amendment) Act, 2025 (often referred to based on the 2024 Bill) introduces sweeping reforms across multiple acts to modernize governance, audit, and customer-facing processes. 

Here is a comparison table summarizing the most impactful amendments: 

Comparison of Banking Law Changes (Previous vs. Amended) 

Conclusion

The transformative nature of this legislation, the Act has moved the banking sector from restrictive, single-point access to flexible, multi-layered options. Where previously a depositor was limited to a single nominee, the new law expands this right to up to four persons. Similarly, locker nominations have evolved from a simple nomination to a successive chain of priority to ensure clearer asset succession. 

Financially, the definition of ownership influence has changed significantly; the threshold for ‘substantial interest’ has leaped from a mere ₹5 lakh to ₹2 crore, reflecting modern valuations. Governance tenures in co-operative banks have been extended from 8 to 10 years to match constitutional standards. Furthermore, Public Sector Banks have transitioned from regulated auditor payment structures to board-decided remuneration, and the industry-wide reporting cycle has shifted from the volatile ‘Reporting Friday’ model to a stable schedule based on the 15th and last day of the month. 

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