Key Changes in the Banking Laws (Amendment) Act, 2025: A Comprehensive Analysis

By Abhishek Jat, Advocate

The Banking Laws (Amendment) Act, 2025, which received presidential assent on April 15, 2025, introduces significant modifications to five major banking legislations in India. This landmark amendment reflects the government's ongoing efforts to modernize India's banking regulatory framework, enhance operational efficiency, and strengthen the financial infrastructure in the country's 76th year of independence.

The legislation amends the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. These amendments address critical aspects of banking operations, governance, and compliance reporting timelines.

A fundamental change relates to the definition of "fortnight" for Cash Reserve Ratio (CRR) purposes under the RBI Act. The reporting period has been redefined from the previous alternate Friday system to a calendar-based approach, spanning from the first to the fifteenth day and from the sixteenth to the last day of each month. This standardization aims to streamline reporting practices and align with international banking norms.

The amendment demonstrates recognition of the unique nature of cooperative banking by extending the tenure of directors in cooperative banks from eight to ten years, providing greater continuity in governance. Additionally, it facilitates cross-institutional leadership by permitting directors of central cooperative banks to serve simultaneously on the board of their respective state cooperative banks where they hold membership.

The threshold for "substantial interest" under the Banking Regulation Act has been significantly increased from five lakh rupees to two crore rupees, with provisions enabling the Central Government to further revise this amount through official notification. This adjustment acknowledges the changing economic landscape and inflation trends since the previous threshold was established.

The legislation brings welcome flexibility to nomination provisions, allowing account holders to appoint up to four nominees either successively or simultaneously, compared to the previous limitation of a single nominee. For successive nominations, the Act establishes a clear hierarchy of priority, while simultaneous nominations require explicit specification of percentage distribution among nominees.

The amendments also strengthen the treatment of unclaimed financial assets by mandating that banks transfer to the Investor Education and Protection Fund not only unclaimed dividends but also shares with seven consecutive years of unclaimed dividends, as well as unclaimed interest or redemption amounts on bonds. This expansion aligns banking regulations with provisions in the Companies Act, 2013, enhancing investor protection.

Furthermore, the Act decentralizes certain administrative functions by transferring the authority to determine auditors' remuneration from the Reserve Bank of India to the respective banks themselves. This shift grants banking institutions greater autonomy while maintaining regulatory oversight.

These amendments collectively represent a significant recalibration of India's banking regulatory architecture to address contemporary challenges while facilitating greater operational efficiency and financial inclusion. The legislation strikes a balance between strengthening regulatory frameworks and providing banks with necessary operational flexibility to meet evolving market demands.