Provisions of Banking Laws Amendment Act 2025 Notified

Provisions of Banking Laws Amendment Act 2025 Notified: Strengthening India’s Banking Governance Framework

On July 29, 2025, the Ministry of Finance issued a notification appointing August 1, 2025, as the effective date for the enforcement of key provisions under the Banking Laws (Amendment) Act, 2025. This legislative update marks a transformative moment in India’s financial ecosystem. The amendments aim to enhance corporate governance, regulatory alignment, and audit integrity across the banking sector—especially in public sector banks (PSBs) and cooperative banks.

The Act amends multiple provisions in five key legislations governing India’s banking industry and introduces changes long overdue in light of evolving global best practices and constitutional mandates.

Key Laws Amended under the Banking Laws (Amendment) Act, 2025

The Act introduces reforms across the following legislations:

• Reserve Bank of India Act, 1934
• Banking Regulation Act, 1949
• State Bank of India Act, 1955
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980

Notified Provisions Coming Into Force from August 1, 2025

Banking Regulation Act, 1949

• Section 5 – Clarifies definitions and interpretations crucial for consistency across banking statutes.
• Section 10-A – Mandates inclusion of professionals with specific domain expertise on bank boards, ensuring diverse and competent leadership.
• Section 16 – Enforces prohibition of common directorships, preventing conflicts of interest across financial institutions.
• Section 38-A – Introduces the Court Liquidator, enhancing the legal infrastructure for bank liquidation processes.
• Section 41 – Strengthens procedures for preliminary reports by official liquidators, ensuring timely transparency in insolvency cases.

Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970

• Section 10 – Deals with closure of accounts and proper disposal of profits.
• Section 10-B – Introduces a mandate for transferring unpaid or unclaimed money to appropriate accounts.

Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980

• Section 10 – Similar provision for closing books of accounts and handling profits in a structured manner.
• Section 10-B – Aligns transfer of unclaimed dividends to the Unpaid Dividend Account, reflecting practices under the Companies Act, 2013.

Major Reforms Introduced

1. Substantial Interest Threshold Recalibrated

• The definition of “substantial interest” has been revised from ₹5 lakh to ₹2 crore, a crucial adjustment to reflect modern financial realities. This is the first change in this threshold since 1968.

2. Director Tenure Alignment with Constitutional Mandate

• For cooperative banks, the maximum tenure for directors (excluding the chairperson and full-time directors) has been extended from 8 years to 10 years.
• This change is made in alignment with the 97th Constitutional Amendment, which promotes democratic functioning in cooperative societies.

3. Transfer of Unclaimed Assets

• Public Sector Banks (PSBs) are now permitted to transfer unclaimed shares, dividends, and bond redemption amounts to the Investor Education and Protection Fund (IEPF).
• This brings PSBs in sync with private companies governed under the Companies Act, 2013 and ensures better investor protection.

4. Enhancing Audit Standards in PSBs

• The amended Act now empowers PSBs to determine and offer suitable remuneration to statutory auditors.
• This will facilitate the engagement of high-quality audit professionals, thereby improving the audit ecosystem and bolstering transparency.

Significance of the Amendments

The 2025 amendment package is part of a broader financial reform strategy. These provisions aim to:

• Modernize India’s banking laws to match global standards.
• Improve corporate governance and accountability in public and cooperative banks.
• Strengthen mechanisms for investor and depositor protection.
• Enhance the framework for liquidation and resolution of failing banks.
• Enable financial inclusion through better-managed cooperative banking structures.

Conclusion

The notification of select provisions under the Banking Laws (Amendment) Act, 2025, effective from August 1, 2025, is a bold step toward revitalizing India’s banking laws. These changes are set to foster good governance, legal clarity, and fiscal discipline, ensuring a safer and more transparent banking environment for all stakeholders.

As India’s banking sector continues to evolve, such progressive legislative moves will be pivotal in maintaining stability and investor trust.

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