Banking Laws (Amendment) Act, 2025

By

Evolution of India’s Banking Laws:

India’s banking regulation has evolved alongside the country’s economic and institutional development, guided by five cornerstone legislations that continue to define its financial architecture.

The Reserve Bank of India is the central bank of the country. The Reserve Bank of India Act, 1934 (II of 1934) establishes the legal foundation for the Bank's operations. It was constituted to primarily regulate the issue of banknotes, maintain reserves in order to secure monetary stability and operate the credit and currency system of the country. In order to strengthen the nation's financial infrastructure, the bank also played a key role in the establishment of organizations such as the Unit Trust of India, the Industrial Development Bank of India, the National Bank of Agriculture and Rural Development and others.

The Banking Regulation Act, 1949 followed soon after independence, consolidating control over banking activities under a uniform legal structure. It is one of the most significant legislative frameworks in India, regulating the banking sector to ensure stability, security, and growth.

The State Bank of India Act, 1955 marked the formal establishment of the State Bank of India (SBI), transforming the undertaking of the Imperial Bank of India, with a mandate to expand banking facilities on a large scale, more particularly in the rural and semi-urban areas, and for diverse other public purposes.

In order to better serve the needs of development of the economy in conformity with the national policy objectives, 14 significant Indian Scheduled Commercial Banks with deposits over Rs 50 crores were nationalized in 1969. Further, a fresh Ordinance was issued which was later replaced by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. To promote the welfare of the people, The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 was passed to provide for the acquisition and transfer of the undertakings of certain banking companies.

In addition to these, several important amendments to the RBI Act such as the Banking Regulation (Amendment) Act, 1994, the Banking Companies (Acquisition and Transfer of Undertakings) Amendment Act, 1994 and the Banking Regulation (Amendment) Act, 2007, the Banking Laws (Amendment) Act, 2012 relating to governance, capital flexibility, Statutory Liquidity Ratio (SLR) or Cash Reserve Ratio (CRR) based liquidity management were introduced, reforming India’s banking framework.

With The Banking Regulation (Amendment) Act, 2020, additional powers were provided to the Reserve Bank of India for enhanced effective regulation of Co-operative banks. Continuing this momentum, in a recent reform, The Banking Laws (Amendment) Act, 2025 amends five acts viz. 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) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. The move aims to enhance banking governance, improve audit transparency, strengthen depositor protection, and bring cooperative banks under a more robust regulatory framework.

Banking Laws (Amendment) Act, 2025: Key Reforms

The Banking Laws (Amendment) Act, 2025 introduces key reforms focused on depositor security, governance strength, and faster resolution of stress. Beyond structural updates, the 2025 Act reinforces India’s ongoing efforts to enhance banking oversight and governance. The changes are rooted in practical challenges visible over the last decade. The provisions of the act were notified in two stages: Section 3 to 5 and 15-20 were covered in Stage 1 (1st August, 2025) while Sections 10 to 13 were covered in Stage 2 (1st November 2025).

The key reforms are described in detail below, outlining the major improvements that have been implemented to improve current systems and processes.

The key reforms are described in detail below, outlining the major improvements that have been implemented to improve current systems and processes.

Modernised Nomination Framework (Sections 10 - 13)

·         Depositors can nominate up to four persons for their bank accounts via either simultaneous or successive nominations

·         Simultaneous nominations allow percentage-wise allocation totalling to 100%

·         Successive nominations ensure seamless succession in case of a nominee’s death for articles in safe custody and safety lockers

Redefinition of ‘Substantial Interest’ (Section 3)

·         Threshold increased from ₹ 5 lakh (1968 limit) to ₹ 2 crore

·         This regulatory change is designed to revamp governance standards

Governance in Co-operative Banks (Section 4 & 14)

·         Maximum tenure of directors (excluding chairperson and whole-time directors) increased from 8 to 10 years. Tenure for directors in other banking companies remains unchanged.

·         Aligns co-operative banks with the 97th Constitutional Amendment, which mandates democratic governance and elevates status in the country’s political and economic framework.

Audit Reforms in PSBs (Sections 15-20)

·         Empower PSBs to fix auditors’ remuneration.

·         Permitted to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF), bringing them in line with practices followed by companies under the Companies Act.

Procedural Efficiency of the System

·         Amendments pertaining to definitions related to the operations revised significantly, shifting the statutory reporting dates for banks and co-operative banks.  

In particular, reporting requirements that earlier referred to “last Friday” or “alternate Fridays” have now been aligned to the last day of the month or the last day of the fortnight, as applicable.

 

Impact of the Banking Reforms with National Vision

 

A major step in fortifying the legal, regulatory, and governance structure of the Indian banking sector has been taken with the implementation of these laws. The 2025 amendments shall have a transformative impact on depositors and service providers.

·  Depositor-centric: The Act includes robust measures to safeguard public trust in banking institutions by simplified claim settlement for their families.

·  Enhanced Governance: The revised threshold for "substantial interest" reflects inflation and growth. The maximum tenure for cooperative bank directors (excluding the Chairperson and whole-time directors) now aligns with the 97th Constitutional Amendment indicating the democratic outlook.

·  Improved Financial Transparency: Transfer to the Investor Education and Protection Fund aims at creating a more transparent system for fund management.

·  Enhanced Audit Quality: The PSBs will now be able to attract more qualified professionals and improve audit quality by paying better auditor remuneration.

·  Improved Operational Efficiency: The Act simplifies certain procedures, such as updating certain operational definitions .

 

Conclusion

The Banking Laws (Amendment) Act, 2025 represents a significant stride towards modernizing India’s financial architecture. By aligning governance norms, depositor safeguards, and audit practices with current economic realities, the Act not only strengthens public confidence but also supports India’s vision of a secure, inclusive, and technology-driven banking system. These reforms reinforce stability, transparency, and efficiency essential pillars for sustaining growth in an increasingly digital economy.

PIB

 


Comments

Post a Comment

Popular posts from this blog

Russian parliament passed a bill to revoke its ratification of the Comprehensive Test Ban Treaty

By
Relevance:  Russia revokes ratification of nuclear test ban treaty (CTBT) - ICAN But it affirmed that it will  retain its cooperation with the treaty’s verification system and implementing organisation.  Comprehensive Test Ban Treaty: The Comprehensive Test Ban Treaty (CTBT), which opened for signature in 1996, was intended to prohibit all nuclear weapon test explosions. Over 2,000 nuclear tests occurred between 1945 and 1996: the United States (1,000+), the Soviet Union (700+), France (200+), the United Kingdom and China (45 each). As at January 2013, 183 countries had signed the Treaty, of which 158 have also ratified it, including three of the nuclear weapon states (France, the Russian Federation and the United Kingdom). However, 44 specific nuclear technology holder countries must sign and ratify before the CTBT can enter into force. Of these, eight are still missing: China, Egypt, India , Iran, Israel, North Korea, Pakistan and the US. India , North Korea and Pakista...
Read more

ISRO developing semi-cryogenic engine working on LOX Kerosene propellant

By
ISRO is developing a 2000 kN thrust semi-cryogenic engine working on an LOX Kerosene propellant combination for enhancing the payload capability of LVM3 and for future launch vehicles. Liquid Propulsion Systems Centre (LPSC) is the lead centre for the development of semi-cryogenic propulsion systems with the support of other launch vehicle centres of ISRO. The assembly and testing of the propulsion modules were done at the ISRO propulsion complex (IPRC), Mahendragiri. As part of the engine development, a pre-burner ignition test article, which is a full complement of the engine power head system excluding the turbopumps is realized. The first ignition trial was conducted successfully on May 2, 2024, at semi cryo integrated engine test facility (SIET) at IPRC, Mahendragiri, which was dedicated to the nation recently by the honorable Prime Minister of India. Smooth and sustained ignition of the preburner is demonstrated which is vital for the starting of the semi-cryogenic engine. Semi-c...
Read more

Interstellar space and Interstellar Probes ( Voyager and New Horizons Missions )

By
Interstellar Space: Interstellar space is often called the space between the stars, but more specifically, it’s the region between our Sun’s heliosphere and the astrospheres of other stars. Our heliosphere is a vast bubble of plasma – a gas of charged particles – that spews out of the Sun. This outflow is known as the solar wind. The bubble surrounds the Sun and stretches beyond the planets. Both Voyager spacecraft had to travel more than 11 billion miles (17 billion kilometers) from the Sun in order to cross the edge of the heliosphere. This bubble is moving through interstellar space as the Sun orbits the center of the Milky Way galaxy. As our heliosphere plows through space, it creates a bow wave, like the wave formed by the bow of a ship. Kuiper Belt &  Oort Cloud: The Kuiper Belt is a doughnut-shaped ring of icy objects around the Sun, extending just beyond the orbit of Neptune from about 30 to 55 AU. Similar to the asteroid belt, the Kuiper Belt is a region of leftovers f...
Read more