The Banking Laws (Amendment) Bill, 2024, introduced by Finance Minister Nirmala Sitharaman in Lok Sabha on December 3, 2024, will affect stakeholders from ordinary people, individual account holders to large corporations.
Potential changes include changes in the number of nominations for deposits, an increase in the amount considered to be substantial interest in the bank, a cash reserve, and the management of unclaimed assets.
Nomination for deposits and bank products: The amendment will let individual account holders add up to four nominees simultaneously or successively. This amendment is aimed at simplifying the inheritance processes and reducing inheritance disputes.
Substantial interest in a company: The amendment will increase the amount needed for 'substantial interest' to rupees two crores. This will primarily benefit corporates and high-net-worth investors while potentially diluting the monitoring process and, thus, accountability for significant interest in smaller banks.
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Management of unclaimed assets: The amendment will expand the scope of unclaimed funds transferred to the Investor Education and Protection Fund (IEPF). This will likely benefit individual account holders by providing a clear process for reclaiming assets. However, the banks would also benefit from the extended holding period before funds are moved to the IEPF written into the proposal.
Tenure of co-operative bank directors: The tenures of bank directors are proposed to be increased by two years allowing them to serve for 10 years instead of eight now. The change could lead to more stability within the bank. Still, it could also entrench leadership, making it difficult for fresh talent to move into the industry.
Definition of fortnight for cash reserves: The amendment will standardise the definition of a fortnight for cash reserves, which will facilitate compliance. However, it is unclear whether this will aid or hinder the Indian banking model unless it also improves bank efficiency.
Remuneration of auditors: Banks will be allowed to determine an auditor's remuneration without consulting the RBI. While this streamlines the process, its impact on transparency remains a concern, as banks could also select auditors who align with their interests.
The Banking Bill (Amendment) 2024 could streamline the banking process in India and increase efficiency. However, there are concerns about the reduced regulatory oversight in some amendments, like the auditor's salary and relaxing the shareholder threshold, diluting the checks and balances needed.
