New Delhi, December 4, 2025 : The Government of India has enacted the Banking Laws (Amendment) Act, 2025, a landmark reform aimed at modernising India’s financial architecture, enhancing depositor protection, strengthening governance in the banking sector, and improving operational transparency across institutions. The reforms were notified in two stages earlier this year and represent a coordinated effort to align India’s banking laws with contemporary technological and regulatory needs.
Key Reforms: Strengthening Governance and Transparency
The 2025 Amendment Act updates five major banking legislations, including 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. These reforms aim to bolster oversight, streamline reporting requirements, and ensure regulatory uniformity across the banking ecosystem.
A central feature of the Act is its emphasis on governance improvements, particularly through redefining the threshold for “substantial interest” from the 1968 limit of ₹5 lakh to ₹2 crore. This change modernises governance norms in line with inflation and evolving financial scale.
For co-operative banks, the Act enhances transparency and democratic functioning by increasing the maximum tenure for board directors (excluding chairperson and whole-time directors) from 8 to 10 years—aligned with the 97th Constitutional Amendment.
Enhanced Depositor Protection and Modern Nomination System
The Act introduces a simplified and modernised nomination framework, enabling depositors to appoint up to four nominees through simultaneous or successive nominations. This reform allows percentage-wise allocation of deposits and ensures smoother succession, particularly for safety lockers and articles in safe custody.
The strengthened nomination mechanism seeks to minimise disputes, reduce delays in claim settlements, and provide timely access to families—an urgent need given the growing volume of unclaimed deposits nationwide.
Audit Quality and Financial Transparency in PSBs
Public Sector Banks (PSBs) have been empowered to determine auditors’ remuneration, enabling them to attract high-quality audit professionals and strengthen their audit systems.
Additionally, unclaimed shares, interest, and bond redemption amounts may now be transferred to the Investor Education and Protection Fund (IEPF), bringing PSBs in line with the transparency practices followed by companies under the Companies Act.
Streamlined Operations and Reporting Standards
The Act updates several definitions and procedural schedules to reduce manual workload and match industry-scale banking operations. Statutory reporting timelines that previously depended on “last Friday” or “alternate Fridays” have been standardised to the last day of the month or fortnight, promoting digital compliance and operational efficiency for banks and co-operative institutions.
Context: Evolution of Banking Laws in India
The reforms build on a long tradition of banking legislation beginning with the Reserve Bank of India Act, 1934, and continuing through nationalisation reforms in 1969 and 1980. Over the decades, major amendments—such as those in 1994, 2007, 2012, and 2020—have successively strengthened India’s banking regulatory framework.
The 2025 Act continues this evolution by addressing modern challenges such as increased financial inclusion, rising digital transactions, and the need for scalable, technology-aligned governance models.
Impact: Advancing India’s National Vision
The Banking Laws (Amendment) Act, 2025 is poised to have a transformative impact:
- Depositor-Centric Banking: Easier and faster claims through improved nomination rules.
- Enhanced Governance: Updated “substantial interest” norms and aligned co-operative bank governance.
- Greater Transparency: Streamlined reporting and transfer of unclaimed assets to IEPF.
- Higher Audit Standards: Improved ability of PSBs to attract professional audit expertise.
- Operational Efficiency: Modernised definitions and aligned reporting structures.
Conclusion
The Banking Laws (Amendment) Act, 2025 represents a major advancement in India’s journey towards a secure, modern, and technology-driven banking ecosystem. By integrating governance reforms, depositor safeguards, and updated regulatory frameworks, the Act enhances public confidence and strengthens the financial foundation essential for India’s continued economic growth.
