In a significant move aimed at better protecting depositors and investors, Union Finance Minister Nirmala Sitharaman introduced the Banking Laws (Amendment) Bill, 2024, in the Lok Sabha. The bill seeks to amend four pieces of legislation to enhance audit quality in public-sector banks (PSBs), ensure consistency in reporting to the Reserve Bank of India (RBI), and extend the tenure of directors in cooperative banks. These changes are designed to create a more transparent and consumer-friendly banking environment, reflecting the government’s commitment to safeguarding the interests of the public.
One of the key provisions of the Banking Laws (Amendment) Bill, 2024, is the better protection for depositors and investors. The bill proposes to amend the State Bank of India Act and the Banking Companies (Acquisition and Transfer of Undertakings) Act to enable the transfer of unclaimed dividends, shares, and interest or redemption of bonds to the Investor Education and Protection Fund (IEPF) when they remain unclaimed for seven consecutive years. This measure ensures that investors can claim transfers or refunds from the fund, promoting investor awareness and protecting their interests.
The bill also aims to improve audit quality in public-sector banks by aligning the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act with the Companies Act, 2013. This harmonization creates a uniform approach across private-sector banks and public-sector entities, enhancing transparency and protecting investor interests. The proposed amendments reflect the government’s commitment to creating a more robust and reliable banking system.
Additionally, the bill proposes to amend various sections of the Banking Regulation Act to allow for up to four nominees from one depositor. This includes simultaneous and successive nominations, offering greater flexibility and convenience for depositors and their legal heirs, especially concerning deposits, articles in safe custody, and safety lockers.
Extending Tenure of Directors in Cooperative Banks
Another significant change proposed in the Banking Laws (Amendment) Bill, 2024, is the extension of the tenure of directors in cooperative banks. The bill seeks to increase the tenure from eight years to ten years, excluding the tenure of the chairman and whole-time directors. This amendment aligns the Banking Regulation Act with the constitutional provision granted to cooperative banks through the 97th amendment in 2011, which specified two tenures of five years each.
The extension of the tenure of directors is expected to provide greater stability and continuity in the management of cooperative banks. This change will enable cooperative banks to benefit from the experience and expertise of their directors, ensuring better governance and decision-making. The proposed amendment reflects the government’s recognition of the important role that cooperative banks play in the financial system and its commitment to supporting their growth and development.
The bill also includes provisions to improve the governance of cooperative banks by enhancing the quality of audits and ensuring consistency in reporting to the RBI. These measures are designed to strengthen the regulatory framework for cooperative banks, promoting transparency and accountability.
Addressing Consumer Concerns
The Banking Laws (Amendment) Bill, 2024, addresses several consumer concerns, reflecting the government’s commitment to creating a more consumer-friendly banking environment. One of the key provisions is the transfer of unclaimed dividends, shares, and interest or redemption of bonds to the IEPF. This measure ensures that investors can easily claim their unclaimed assets by submitting the required documents and following the verification process.
The bill also proposes to amend the Banking Regulation Act to allow for up to four nominees from one depositor, offering greater flexibility and convenience for depositors and their legal heirs. This change is particularly important for deposits, articles in safe custody, and safety lockers, ensuring that depositors’ interests are protected.
Additionally, the bill aims to improve audit quality in public-sector banks and ensure consistency in reporting to the RBI. These measures are designed to create a more transparent and reliable banking system, enhancing consumer confidence and trust in the financial system. The proposed amendments reflect the government’s commitment to safeguarding the interests of depositors and investors, promoting a more consumer-friendly banking environment.
