Banking Laws Amendment Bill
04-12-2024
07:30 AM
1 min read
What’s in today’s article?
- Why in the News?
- Introduction
- Key Amendments & Provisions of Banking Laws (Amendment) Bill, 2024
- Key Takeaways
Why in the News?
- The Lok Sabha passed the Banking Laws (Amendment) Bill, 2024 on December 3, 2024, marking the first legislative achievement of the Winter Session after a week-long deadlock.
- The Bill, introduced by Finance Minister Nirmala Sitharaman, was passed via a voice vote.
Introduction
- The Banking Laws (Amendment) Bill, 2024, introduced in the Lok Sabha on August 9, 2024, aims to amend multiple banking-related laws to streamline operations and modernize regulations. It amends the following Acts:
- Reserve Bank of India (RBI) Act, 1934
- Banking Regulation Act, 1949
- State Bank of India Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980
Key Amendments & Provisions of Banking Laws (Amendment) Bill, 2024
- Redefinition of "Fortnight" for Cash Reserves:
- Current Definition:
- A fortnight is defined as Saturday to the second following Friday (14 days).
- New Definition:
- From the 1st to the 15th of each month, or
- From the 16th to the last day of the month.
- Impact: This change affects how both scheduled and non-scheduled banks maintain cash reserves with the RBI.
- Current Definition:
- Tenure of Directors in Co-operative Banks:
- Existing Rule: Directors (other than the chairman or whole-time director) cannot serve more than 8 consecutive years.
- New Rule: Extends the tenure to 10 consecutive years for co-operative banks.
- Exemption for Common Directors in Co-operative Banks:
- Current Rule: A director of one bank cannot serve on the board of another bank, except for RBI-appointed directors.
- Amendment: Allows directors of central co-operative banks to also serve on the board of a state co-operative bank where they are a member.
- Increase in Threshold for Substantial Interest in Companies:
- Existing Threshold: Substantial interest in a company is defined as holding shares worth more than ₹5 lakh or 10% of the company’s paid-up capital, whichever is lower.
- New Threshold: Raises this to ₹2 crore. The government may modify this amount through notifications.
- Nomination Rules for Deposits and Lockers:
- Current Provision: A single or joint deposit holder can appoint one nominee.
- New Provision:
- Allows up to four nominees.
- For Deposits: Nominees can be named simultaneously or successively. In simultaneous nominations, the share is divided proportionally.
- For Lockers and Articles in Custody: Successive nominations can be made, with priority based on the order of nomination.
- Settlement of Unclaimed Amounts:
- Current Rule: Unpaid or unclaimed dividends are transferred to the Investor Education and Protection Fund (IEPF) after seven years.
- Amendment:
- Expands the scope to include:
- Shares with unclaimed dividends for seven consecutive years.
- Unpaid interest or redemption amounts for bonds for seven years.
- Allows claimants to retrieve shares or funds transferred to the IEPF.
- Auditor Remuneration:
- Existing Rule: The RBI, in consultation with the central government, fixes auditors' remuneration.
- Amendment: Empowers banks to independently decide the remuneration for their auditors.
Key Takeaways
- The Banking Laws (Amendment) Bill, 2024 introduces critical changes to enhance banking governance, improve efficiency, and protect customer interests. These include:
- Simplifying regulatory frameworks for cash reserves and director tenures.
- Providing flexibility in nominations and addressing unclaimed funds.
- Empowering banks to determine auditor fees.
- Strengthening the co-operative banking system through revised rules for directors and substantial interest thresholds.
Q1.When was the Cooperative Act passed?
The Co-operative Societies Act of 1912 was passed to make it easier to form co-operative societies, especially for people with limited means, artisans, and agriculturists. The Act allowed for the organization of cooperatives to provide non-credit services to their members. It also allowed for the formation of federations of cooperatives.
Q2. What is NPA and its classification?
Non Performing Assets are loans or advances not repaid for over 90 days, affecting a bank's income. Types of NPAs: Substandard (up to 12 months), Doubtful (over 12 months), and Loss assets (little to no recovery prospects).