Why in News?
The Banking Laws (Amendment) Bill, 2024, recently introduced by Union Finance Minister Nirmala Sitharaman in the Lok Sabha. It proposes significant changes in India’s banking regulations to improve governance in the Indian banking sector.
Banking Laws (Amendment) Bill, 2024: Key Provisions
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- Nominee Options Expanded: Account holders can now designate up to four nominees for their bank accounts and safety lockers, increasing flexibility and security for depositors.
- Simultaneous and Successive Nominations: The bill allows for simultaneous (all nominees can claim simultaneously) and successive nominations (if the first nominee is unavailable, the next in line can claim).
- Increased Shareholding Threshold: The threshold for substantial interest in a company, required for directorship, has been raised from ₹5 lakh to ₹2 crore.
- Extended Director Tenure: This proposes to increase the term of directors from 8 years to 10 years specially in cooperative banks. This aims to improve continuity in leadership and decision-making in cooperative banks.
- Transfer of Unclaimed Assets: If assets like dividends, shares, or interest remain unclaimed for seven years, they will be transferred to the Investor Education and Protection Fund (IEPF). Investors can later claim these assets from the fund.
- Proposed Changes to Existing Laws: The Banking Laws (Amendment) Bill, 2024 also seeks to amend the following key banking laws to make the system more responsive to modern financial challenges.
- Reserve Bank of India Act, 1934
- Banking Regulation Act, 1949
- State Bank of India Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.
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Banking Acts in India:
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Banking Laws (Amendment) Bill, 2024: Objectives
- Strengthening Banking Governance: The bill aims to improve oversight and accountability within the banking system by enhancing reporting standards and compliance.
- Better Protection for Depositors and Investors: It introduces measures that ensure better safety for both depositors and investors, reducing risks and enhancing trust in the banking sector.
- Improving Reporting Consistency: It introduces measures to streamline the reporting mechanisms of banks to the Reserve Bank of India (RBI), ensuring more accurate and timely reporting.
- Enhancing Public Sector Bank Standards: The amendment aims to raise the quality of services and governance in public sector banks (PSBs).
- Alignment with Global Standards: Raising the limit for significant interest reflects the dynamic nature of the financial sector and ensures that India’s banking system remains globally competitive.
Banking Sector in India
India’s banking sector is diverse and extensive. It comprises scheduled commercial banks, cooperative banks, non-banking financial companies (NBFCs), and other financial institutions, which cater to various sectors of the economy.
- Scheduled Commercial Banks (SCBs): Banks listed in the Second Schedule of the RBI Act, 1934. They must maintain reserves of ₹5 lakh.
- Public Sector Banks (PSBs): These banks are either owned by the government or have substantial government ownership. Example State Bank of India (SBI).
- Private Sector Banks: These banks are privately maintained and owned. Examples HDFC Bank, Axis Bank and ICICI Bank.
- Regional Rural Banks (RRBs): Established under the Regional Rural Banks Act, 1976, RRBs aim to provide banking services in rural areas with a focus on agriculture and rural development.
- Cooperative Banks: These are local banks that serve rural and semi-urban areas and are often governed by the Cooperative Societies Act.
- Small Finance Banks & Payment Banks: Aimed at promoting financial inclusion, these banks serve specific sectors like small businesses, farmers, and low-income households.
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History of Banking in India:
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