Banking Laws (Amendment) Bill to strengthen governance, enhance customer convenience: FM

Besides, the government also proposed the amendments to several banking laws, allowing up to four nominees per account, and transferring unclaimed dividends to the investor education and protection fund or IEPF among others. The bill also seeks to improve audit quality, redefine ‘substantial interest,’ and adjust the tenure of directors in cooperative banks as well.

The proposed bill, piloted by Ms Sitharaman, was approved by a voice vote. Among the key amendments, the finance minister also focussed the proposed change relates to redefining ‘substantial interest’ for directorships, which could increase to Rs 2 crore instead of the current limit of Rs 5 lakh, which was fixed almost six decades ago.

Earlier in the day, FM Sitharaman introduced the Banking Laws (Amendment) Bill in the Lok Sabha, proposing to make as many as 19 amendments, including changes in the RBI Act, the Banking Regulation Act, the SBI Act, the Banking Companies (acquisition and transfer of undertakings) Act, and the Banking Companies (acquisition and transfer of undertakings) Act among others.

Replying to the debate on the bill, Ms Sitharaman said that depositors would have the option of successive or simultaneous nomination facility, while locker holders will have only successive nomination. “Since 2014, the government and the Reserve Bank of India (RBI) have been extremely cautious, so that banks remain stable. The intention is to keep our banks safe, stable, healthy, and after 10 years you are seeing the outcome,” Ms Sitharaman said.

The bill also proposes to increase the tenure of directors (excluding the chairman and whole-time director) in cooperative banks from 8 years to 10 years, so as to align with the constitution (ninety-seventh Amendment) Act, 2011. Once passed, the bill would allow a director of a Central Cooperative Bank to serve on the board of a State Cooperative Bank.

The bill also seeks to give greater freedom to banks in deciding the remuneration to be paid to statutory auditors, seeking to redefine the reporting dates for banks for regulatory compliance to the 15th and last day of every month instead of the second and fourth Fridays. “The proposed amendments will strengthen governance in the banking sector and enhance customer convenience with respect to nomination and protection of investors,” she said.

The finance minister also highlighted the strength of India’s banking sector, saying that the public sector banks are safe, stable and healthy and emphasised that PSBs are efficiently managed and do not rely on government funding. In her address in the Lok Sabha, she noted that all public sector banks are profitable, with a total profit of Rs 85,520 crore in the first half of the current fiscal year.

“Banks are being professionally run today. The metrics are healthy so they can go to the market and raise bonds, raise loans & run their business accordingly. Look around and the world has lost their banks where regulatory systems are sound, the banks have failed. We can't have our banks struggling. We must credit the RBI and finance ministry for it. Since 2014, we are cautious that banks remain stable,” she added.

With passing the bill, Opposition members in the Lok Sabha fiercely criticised a bill aimed at banking reforms with TMC MP Kalyan Banerjee describing it as a ‘donkey passage towards privatisation of the Indian banking sector’. While the bill ostensibly seeks to improve bank guarantees and investor protection, its real intent is to reduce the government's minimum holding in public sector banks from 51 to 26 per cent, he argued.

Banerjee also flagged cyber security concerns, emphasising the need for robust IT systems to detect fraud and ensure strict adherence to data privacy regulations. “Advanced systems for fraud detection and regulatory compliance are essential to build trust,” he said, underscoring the importance of tackling financial crimes.

Samajwadi Party MP Rajeev Rai brought attention to the struggles of common people dealing with credit issues. “The CIBIL scores of poor people are ruined, middle-class people face the same issue,” he said, lamenting how poor communication from banks often leaves borrowers in financial distress.