Banking Laws (Amendment) Bill, 2024: Key Reforms in Nomination, Substantial Interest, and Regulatory Compliance

Parliament has passed the Banking Laws (Amendment) Bill, 2024, introducing significant reforms in banking regulations. The Rajya Sabha approved the bill by a voice vote, following its passage in the Lok Sabha in December 2024. A key provision allows bank account holders to have up to four nominees, enhancing flexibility in financial asset management.

The bill also revises the definition of substantial interest in a bank by raising the threshold from ₹5 lakh to ₹2 crore, updating a nearly six-decade-old provision. Additionally, it extends the tenure of directors (excluding the chairman and whole-time directors) in cooperative banks from 8 years to 10 years to align with the Constitution (Ninety-Seventh Amendment) Act, 2011. A director of a Central Cooperative Bank will now be eligible to serve on the board of a State Cooperative Bank.

Another key reform provides banks greater autonomy in deciding remuneration for statutory auditors. The bill also redefines regulatory reporting dates, shifting from the second and fourth Fridays to the 15th and the last day of each month.

Finance Minister Nirmala Sitharaman, while responding to the Rajya Sabha debate, emphasized the government’s commitment to tackling wilful defaulters, stating that the Directorate of Enforcement has taken up around 112 bank fraud cases in the past five years. She clarified that loan write-offs do not equate to loan waivers, as banks continue recovery efforts. Notably, public sector banks recorded their highest-ever profit of approximately ₹1.41 lakh crore in the last fiscal year, with expectations of further growth in 2025-26.

The bill also introduces simultaneous nomination provisions for cash, fixed deposits, and lockers, aligning banking practices with insurance and other financial instruments. These amendments impact five different banking laws, making the reform comprehensive and structurally significant.