Finance Minister Nirmala Sitharaman unveiled the Banking Amendment Bill 2024 on 9 August 2024 in Lok Sabha. The bill proposed major changes in the banking sector from increasing nominees per bank account to flexibility to banks in auditor compensation, etc.
Banking Amendment Bill 2024
Nirmala Sitharaman presented the Banking Amendment Bill 2024 in Lok Sabha to bring essential changes in the banking regulations to safeguard the interest of investors and strengthen banking governance.
The proposed bill amends the Reserve Bank of India Act 1934, State Bank of India Act 1955, Banking Regulation Act 1949, Banking Companies (Acquisition and Transfer of Undertakings) 1980, and Banking Companies Act 1970. The Banking Bill 2024 was approved on 2 August 2024 by the Union Cabinet.
The FM has mentioned the need for change in banking reforms in her 2023-24 budget speech to improve banking governance. The bill proposed the tenure of cooperative bank directors, an increase in nominees per bank account, and many more changes that have been followed for over a decade.
Major Proposed Changes in the Banking Amendment Bill 2024
The Finance minister has introduced the following major changes in the banking regulations through the proposed Banking Amendment Bill 2024:
- Increase in the number of Nominees:
- The current banking regulations permit only one nominee to the single or joint account holders for their deposit. The appointed nominee can access the deposit locker in case the account holder dies, the nominee will also be appointed as a nominee for the locker and the items in the bank custody.
- The proposed bill allowed the depositors to appoint up to four nominees successively or in unison/simultaneously.
- The simultaneous nominees, nominations will happen in the designated proportion, whereas in the case of successive nominees, the nominee who has been named higher in the order of nomination will have priority during the nomination.
- Substantial interest:
- The proposed bill changes increase the threshold for the substantial interest of a company from the current limit of five lakh rupees to two crore rupees.
- The central government will make the changes through the notification when it is passed.
- Unclaimed Amounts transfer to IEPF:
- Under the Banking Regulations Act, the unclaimed amounts that stay untouched for more than seven years are transferred to the Investor Education and Protection Fund (IEPF).
- The proposed 2024 Banking Amendment bill has broadened the aspect of funds to being directed to IEPF – when the dividends and shares have not been paid or claimed for seven consecutive years, and the redemption amount of bonds or any interest remains unclaimed or unpaid for seven consecutive years.
Important Changes of the Banking Amendment Bill 2024 for Banks
The Banking Amendment bill has the following important features to be noted for the banks:
- The Banking Amendment bill redefined the definition of a fortnight for cash reserves to sections 18, 25, 24, and 56 of the Banking Regulations Act as the bill changes the reporting dates of submitting the statutory reports to the RBI from Friday to the last day of the fortnight, month or quarter, meaning from the first day of fifteenth of the day of each month or sixteenth day of last of each month.
- The bill allows the Central Cooperative Bank director to serve on the board of the State Cooperative Bank amending Section 16 of the Banking Regulations Act.
- The current Banking Regulation Act prohibits the Bank director from holding office for more than 8 years, whereas the new reforms change the tenure to 10 years.
- Freedom to bank in deciding the remuneration for statutory auditors, the proposed bill allows the bank to decide the emolument paid to the statutory auditors. Currently, the bank follows the rate fixed by the RBI, which they decide by consulting the central government.
Possible Impact of the Banking Amendment Bill 2024
The proposed Banking Amendment Bill 2024 will redefine banking regulations from its governance to investors’ protection and interest, lets what are the possible impact of the proposed bill:
- The change in nominees from one nominee to successive or simultaneous nominees will avail the nomination benefits and survivorship clause for the lockers, meaning in case of sudden death of the joint locker hirer, the locker right does not go to the surviving joint locker-hirer until there is surviving class/ nomination.
- As the proposed bill progresses over the years, it will enhance banking governance and make it more effective in terms of financial management.
- The flexibility in statutory auditor remuneration and the reporting to the RBI will impact the accuracy of reporting data, it will avoid inconsistent reporting due to market fluctuations.
The proposed Banking Amendment Bill 2024 is aimed at redefining the banking regulations for improving banking governance reflecting the government’s commitment to strengthen banking governance.