Banking Laws (Amendment) Bill To Be Tabled In LS: Likely Changes - Decoded

The Union Finance Minister of India Nirmala Sitharaman in the Winter Session of the Parliament will move the Banking Laws (Amendment) Bill, which will amend certain other banking acts.

What Acts Will Be Amended Under Banking Laws (Amendment) Bill?

The list of acts to be amended underneath the Banking Laws Amendment include:

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

What Are The Changes That Will Be Made?

• 'Fortnight' For Cash Reserves: The RBI Act states that scheduled banks must maintain a certain level of average daily balance with the RBI as cash reserves. The average daily balance is based on the average of balances held by the banks at the closing of each day of a fortnight, wherein a fortnight is a period from Saturday to the second following Friday (including both days).
  The Bill aims to changes the definition of a fortnight to the period from the first day to the fifteenth day of each month or sixteenth to the last day of each month.
  Additionally, this definition is also changed under the Banking Regulation Act where non-scheduled banks are required to maintain cash reserves.
•  Directors' Tenure For Co-Operative Banks: According to the Banking Regulation Act, the director of a bank is prohibited from holding office for over eight years consecutively. The Bill seeks to increase this period to 10 years for co-operative banks.
•  Prohibition On Common Directors Of Co-Operative Banks: The Banking Regulation Act prohibits a director on the board of a bank to serve another bank's board. However, this does not apply to directors appointed by RBI. The Bill extends the exemption to central co-operative bank directors as well.
•  Substantial Interest: Substantial interest in a company refers to holding shares of over five lakh rupees or 10 per cent of the paid-up capital of the firm (whichever is less), according to the Banking Regulation Act. 
  This may be held by an individual, their spouse or minor child, either individually or collectively.The amendment seeks to increase the threshold to Rs 2 crore. The central government may alter the amount through a notification.
•  Nomination: Single or joint deposit holders, under the Banking regulation Act can appoint a nominee for their deposit. Such a nominee can be appointed for items left in custody of a bank or a locker hired from bank. Nominees can access the deposit, articles, or locker in case of the death of the person who nominated them.
  In case of deposits, such nominees can either be appointed either successively or simultaneously while for other purposes they can be appointed successively.
  For simultaneous nominees, the nomination will be effective in a declared proportion. While, for successive nomination, nominees named higher in order of nomination will receive priority.
•  Unclaimed Amount Settlements: The State Bank of India Act, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 enable transferring unpaid or unclaimed dividends to an unpaid dividend account. In case the money in the account remains unpaid for seven years, it is transferred to the Investor Education and Protection Fund (IEPF).
  The amendment shall widen the ambit of the funds that can be transferred to the IEPF, including shares for which dividend has not been paid or claimed for seven consecutive years, any interest or redemption amount for bonds unpaid or unclaimed for seven years and any interest or redemption amount for bonds that are unclaimed or unpaid for seven years.
  Any person whose shares or unclaimed or unpaid money is transferred to IEPF can claim refund.
•  Auditors' Remuneration: Currently, the remuneration paid to the auditors of banks is fixed by the RBI in consultation with the central government. The bill empowers banks to decide the remuneration of their auditors.