The Banking Laws Amendment Act, 2025, officially came into force on 1 August 2025, ushering in significant reforms across India’s banking legislation. Designed to strengthen governance, protect depositor interests, and elevate audit quality, the Act marks a long-awaited modernisation of regulations that had remained static for decades.
Scope and Implementation of Banking Laws Amendment Act
The legislation introduces 19 targeted amendments spanning the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, State Bank of India Act, 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. The Central Government confirmed the effective date as 1 August 2025 for several critical provisions, with official notification published in the July 2025 Gazette.
Raising the Bar for ‘Substantial Interest’
A key update increases the definition threshold for substantial interest from ₹5 lakh to ₹2 crore — a benchmark unchanged since 1968. This shift ensures that only genuinely significant stakeholders qualify for directorship roles, aligning governance norms with the present-day economic and banking landscape.
Tenure Reforms for Cooperative Bank Directors
To align with the 97th Constitutional Amendment, cooperative bank directors (excluding chairpersons and whole-time directors) can now serve a maximum of 10 years, up from the previous 8 years. This change aims to foster continuity and stability in leadership.
Management of Unclaimed Funds
Public sector banks are now authorised to transfer unclaimed shares, interest amounts, and bond redemption proceeds to the Investor Education and Protection Fund (IEPF). This harmonises banking procedures with the Companies Act, enhancing oversight of dormant funds and protecting investor rights.
Boosting Audit Quality
The Act empowers public sector banks to directly remunerate statutory auditors, enabling the recruitment of highly skilled audit professionals. This move is expected to improve transparency, accountability, and the overall robustness of bank audits.
Streamlined Reporting to RBI
Banks will now report to the Reserve Bank of India at the end of each fortnight, month, or quarter, instead of the earlier weekly Friday reports. This adjustment reduces administrative load and simplifies compliance.
Legislative Pathway
Initially tabled in August 2024, the bill experienced delays before clearing both houses of Parliament. It passed the Lok Sabha in December 2024, the Rajya Sabha in March 2025 (with amendments), and received final Lok Sabha approval in April 2025, culminating in its enactment.
