From 1st August 2025, key provisions of the Banking Laws (Amendment) Act, 2025 have come into force.

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

• Redefinition of Substantial Interest: The threshold for determining “substantial interest” in a banking company is increased from ₹5 lakh to ₹2 crore.
  • “substantial interest” means holding enough shares in a bank to influence its decision. It determines eligibility and potential conflict of interest for directors and stakeholders.
• Changes in Cooperative Bank Governance: The maximum tenure for directors (excluding chairperson and whole-time directors) in cooperative banks is increased from 8 years to 10 years.
• • This aligns the governance norms with the 97th Constitutional Amendment, which mandates cooperative autonomy and democratic functioning.
• Improvement in Audit Practices: PSBs are now empowered to decide remuneration for statutory auditors.
• Transfer of Unclaimed Financial Assets: PSBs are allowed to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF).
• Revised Reporting Obligations: The amendment modifies reporting timelines for banks  moving from weekly reporting (every Friday) to reporting  RBI at the end of a fortnight, month, or quarter, thereby easing compliance without compromising on regulatory oversight.

Acts Impacted under the Amendment

What Changes for Customers?

• Stronger Audit and Transparency in PSBs: Improved audit standards in PSBs enhance depositor confidence and promote safer banking practices.
• Improved Claim Mechanism via IEPF: Transfer of unclaimed assets to IEPF ensures a centralised and accessible claim process for legal heirs.
• Better Representation in Cooperative Banks: Extended director tenure brings stability and better governance, improving service delivery in community-based cooperative banks.
• Reduced Systemic Risk: Enhanced oversight and governance mechanisms reduce banking sector vulnerabilities and protect public funds.
  

Conclusion

The Banking Laws (Amendment) Act, 2025 marks a major step toward strengthening governance, ensuring transparency, aligning cooperative banks with constitutional norms, and enhancing depositor protection for a more resilient and inclusive Indian banking ecosystem.

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