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Ministry of Finance | Reserve Bank of India (RBI)
The Banking Laws (Amendment) Act, 2025, marks a significant stride toward modernizing India’s financial architecture by amending five cornerstone acts, including the Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949. The provisions of the Act were notified in two stages (August 1 and November 1, 2025) and aim to strengthen governance, improve audit transparency, and enhance depositor and investor protection.
Key Regulatory Reforms Implemented:
Modernised Nomination Framework (Depositor-Centric): (Implemented Nov. 1, 2025)
Depositors gain flexibility to designate up to four nominees for their bank accounts and safety lockers.
Allows for simultaneous nominations (percentage-wise allocation) and successive nominations to ensure seamless transfer of assets.
This is intended to accelerate claim settlements and reduce the issue of unclaimed deposits.
Enhanced Governance and Oversight: (Implemented Aug. 1, 2025)
The threshold for ‘Substantial Interest’ in banking companies was increased from the outdated ₹5 lakh (1968 limit) to ₹2 crore, aligning regulatory standards with current economic realities.
The maximum tenure for directors in Co-operative Banks (excluding the chairperson and whole-time directors) was extended from 8 to 10 years, aligning with the 97th Constitutional Amendment.
Audit and Financial Efficiency: (Implemented Aug. 1, 2025)
Audit Quality: Public Sector Banks (PSBs) are now empowered to fix their own auditors’ remuneration, a key change intended to attract qualified professionals.
Unclaimed Funds: PSBs are permitted to transfer unclaimed funds to the Investor Education and Protection Fund (IEPF), enhancing financial transparency.
Procedural Efficiency: Statutory reporting dates for banks were revised, shifting from the “last Friday/alternate Fridays” to the last day of the month/fortnight, to simplify procedures.
Policy Relevance
The Banking Laws (Amendment) Act, 2025, is a major regulatory step that fortifies the legal and governance structure of the Indian banking sector. By updating legacy financial limits, strengthening audit mechanisms in PSBs, and instituting a modern, depositor-centric nomination system, the Act supports India’s vision of a secure, inclusive, and technology-driven banking system. These reforms are essential for maintaining stability, transparency, and efficiency in a sector crucial for sustaining national growth.
What is Substantial Interest? Substantial Interest is a regulatory threshold used to identify an individual’s significant ownership or financial stake in a banking company. The increase in this threshold from ₹5 lakh to ₹2 crore reflects the necessary adjustment for decades of inflation and economic growth.
Relevant Question for Policy Stakeholders: What monitoring and review mechanisms will the RBI put in place to ensure that the increased remuneration flexibility translates directly into verifiable improvements in the audit quality of Public Sector Banks?
Follow the full news here: Banking Laws (Amendment) Act, 2025