Banking Bill seeks to resolve issues about unclaimed deposits, nomination among 17 other changes

The bill also seeks to improve governance at banks and ensure better protection for depositors and investors, apart from enhancing customer convenience.
 Union Finance minister Nirmala Sitharaman
Union Finance minister Nirmala Sitharaman Photo | Express
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MUMBAI: Finance Minister Nirmala Sitharaman has tabled the Banking Laws (Amendment) Bill in the Lok Sabha, proposing to make as many as 19 amendments, including changes in the RBI Act, the Banking Regulation Act, the SBI Act, the Banking Companies (acquisition and transfer of undertakings) Act, and the Banking Companies (acquisition and transfer of undertakings) Act.

The bill also seeks to improve governance at banks and ensure better protection for depositors and investors, apart from enhancing customer convenience, the minister told the lawmakers presenting the bill on Tuesday.

The bill seeks to bring about changes in the RBI Act of 1934, the Banking Regulation Act of 1949, the State Bank of India Act of 1955, the Banking Companies (acquisition and transfer of undertakings) Act of 1970, and the Banking Companies (acquisition and transfer of undertakings) Act of 1980.

"The proposed amendments will strengthen governance in the banking sector and enhance customer convenience with respect to nomination and protection of investors," Sitharaman said.

Among the other key changes, the bill proposes to allow a bank account holder to have up to four nominees in their account. It also seeks to transfer unclaimed dividends, shares, and interest or redemption of bonds to the investor education and protection fund, allowing individuals to claim transfers or refunds from the fund.

 Union Finance minister Nirmala Sitharaman
Banking Laws Bill, 2024 introduces successive nominations, modernises regulations

To improve governance standards at banks, the bill seeks to bring in consistency in reporting by banks to the Reserve Bank, which will ensure better protection of depositors and investors, improve audit quality in public sector banks, improve customer convenience in respect of nominations and provide an increase in the tenure of the directors in co-operative banks.

For bankers, the bill also seeks to provide greater freedom in deciding the remuneration to be paid to statutory auditors.

Another change proposed is to redefine "substantial interest" for directors, which could increase to Rs 2 crore from Rs 5 lakh, which was fixed almost six decades ago.

The bill further proposes to increase the tenure of directors (excluding chairman and whole-time directors) in cooperative banks from eight years to 10, with a view to align with the 97th Constitution Amendment Act of 2011. If the bill gets lawmakers' nod, it will allow a director of a central cooperative bank to serve on the board of a state cooperative bank.

The bill further seeks to redefine the reporting dates for banks for regulatory compliance to the 15th and last day of every month instead of the second and fourth Fridays now.

While the bill seeks to amend Section 42 of the RBI Act to enable banks to change their reporting days from the first day to the 15th day of each calendar month or 16th day to the last day of each calendar month, both days inclusive.

In the Banking Regulation Act of 1949 seeks to change Section 5 to redefine "substantial interest" for directors, which could increase to Rs 2 crore from Rs 5 lakh, which was fixed almost six decades ago.

On the unclaimed money part, the bill seeks to make the following changes: any money that remains unpaid or unclaimed for a period of seven years from the date of its transfer in the unpaid dividend account of the corresponding new bank, all shares in respect of which dividend has not been paid or claimed for a period of seven consecutive years, the repayment will be under the provisions of the Companies Act of 2013.

Amends to section 38A of the SBI Act seeks to provide discretion to public sector banks in the matter of remuneration of auditors.

Commenting on the proposals in the bill, Jyoti Prakash Gadia, managing director of Resurgent India, said the proposals will make the banking sector more robust and resilient as they seek to improve their functioning.

Two important proposals are about resolving the huge amount of unclaimed deposits with banks and the governance practices at cooperative banks. The proposal is for settlement of unclaimed amounts in banks which were around Rs 78,000 crore as of March 2024, Gaida said.

The second proposed change in laws relates to the appointment of directors in cooperative banks to bring them in line with changing requirements as per the wider applicable rules on operations and policy-making and governance at the director level in banks regarding their tenure and other responsibilities, she added.

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