Banking Laws: Key Provisions of the 2025 Amendment Act for UPSC
Q. With reference to the Banking Laws (Amendment) Act 2025, consider the following statements:
1. For the first time, depositors are permitted to nominate up to four persons for their bank accounts, with options for both simultaneous and successive nominations.
2. The statutory reporting dates for banks have been shifted from the "last Friday" to the "last day" of the month or fortnight to reduce manual workload.
3. Public Sector Banks (PSBs) have been empowered to fix the remuneration of their auditors to attract qualified professionals.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Context
The Banking Laws (Amendment) Act, 2025 has been introduced to strengthen governance standards, improve audit quality in Public Sector Banks (PSBs), and enhance depositor protection. The Act seeks to align India's banking framework with modern digital requirements and evolving technology.
Evolution of India's Banking Laws
India’s banking regulation is defined by cornerstone legislations:
- Reserve Bank of India Act, 1934 — Established the legal foundation for the RBI’s operations, including regulating banknotes and maintaining monetary stability.
- Banking Regulation Act, 1949 — Consolidated control over banking activities under a uniform legal structure.
- State Bank of India Act, 1955 — Formally established the SBI to expand banking facilities, particularly in rural and semi-urban areas.
- Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 & 1980 — Facilitated the nationalisation of significant commercial banks to serve national policy objectives.
- Banking Regulation (Amendment) Act, 2020 — Provided additional powers to the RBI for effective regulation of Co-operative banks.
Key Reforms in the 2025 Act
The Act amends five major legislations, including the RBI Act (1934) and the Banking Regulation Act (1949). The reforms were notified in two stages (August and November 2025).
1. Modernised Nomination Framework
- Multiple Nominees: Depositors can now nominate up to four persons for their bank accounts.
- Nomination Types: Supports both simultaneous (percentage-wise allocation totalling 100%) and successive nominations.
- Seamless Succession: Ensures smoother claim settlements for articles in safe custody and safety lockers.
2. Governance and Audit Reforms
- Substantial Interest: The regulatory threshold was increased from ₹5 lakh (1968 limit) to ₹2 crore to revamp governance standards.
- Audit Remuneration: PSBs are now empowered to fix auditors’ remuneration, helping attract qualified professionals.
- Unclaimed Funds: Banks are permitted to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF).
3. Co-operative Banking Changes
- Director Tenure: Maximum tenure of directors (excluding chairperson and whole-time directors) increased from 8 to 10 years.
- 97th Constitutional Amendment: Aligns co-operative banks with democratic governance mandates.
4. Operational & Procedural Efficiency
- Reporting Dates: Statutory reporting dates have been aligned to the last day of the month or fortnight, replacing the previous "last Friday" or "alternate Fridays" requirement. This shift reduces manual workload and promotes automation.
Significance
The Banking Laws (Amendment) Act, 2025 represents a stride towards modernising India's financial architecture. By increasing the flexibility for nominations, it addresses the issue of huge unclaimed deposits lying across banks. The Act reinforces stability, transparency, and audit quality, which are essential pillars for sustained growth in a digital economy.
🎯 Analysis & Insights
Prelims mastery
Correct Answer: (d) 1, 2 and 3.
Reasoning: All three statements are correct as per the 2025 Act. The Act allows up to 4 nominees, aligns reporting to the last day of the period, and gives PSBs the power to determine audit remuneration (Matches sections 1, 2, and 4).
Mains perspective
"By addressing the issue of unclaimed deposits through a modernized nomination framework and strengthening audit independence, the Banking Laws (Amendment) Act 2025 targets both financial inclusion and institutional stability." Analyze. (150 words)