A nation’s economic strength is deeply rooted in the robustness of its financial system. Banks play a central role by providing essential services such as accepting deposits, offering loans, facilitating transactions, and giving access to financial products like credit cards and savings accounts. India’s banking system not only supports investment and personal finance but also plays a decisive role in national economic growth.
India’s banking sector has evolved from a paper-based, branch-centric model into a technologically advanced digital ecosystem. From traditional banking and early computerisation to Aadhaar-enabled biometric systems and the Pradhan Mantri Jan-Dhan Yojana, India has successfully integrated millions of previously unbanked citizens into the formal financial system, strengthening financial inclusion across rural and urban regions.
The Banking Laws (Amendment) Act, 2025 is another significant step towards reinforcing governance standards across PSBs, improving audit transparency, and strengthening depositor and investor protections through enhanced nomination facilities.
Evolution of India’s Banking Laws
India’s banking regulation framework has evolved alongside the country’s economic and institutional development. Five foundational legislations define the core of this framework:
RBI Act, 1934 established the Reserve Bank of India as the central bank, with responsibilities such as currency issuance, monetary stability, and regulating credit and currency systems. RBI also played a key role in establishing UTI, IDBI, NABARD, and other institutions.
Banking Regulation Act, 1949 introduced uniform control over banking operations, ensuring stability, security, and growth.
State Bank of India Act, 1955 transformed the Imperial Bank of India into the SBI with an expanded mandate to extend banking facilities, particularly in rural areas.
Nationalisation of major banks in 1969, followed by another nationalisation in 1980, aligned banking operations with national developmental goals.
Subsequent amendments—including major revisions in 1994, 2007, 2012, and the Banking Regulation (Amendment) Act, 2020—strengthened governance, liquidity management, and cooperative bank regulation.
Continuing this trajectory, the 2025 Amendment modifies five key Acts:
RBI Act, 1934
Banking Regulation Act, 1949
SBI Act, 1955
Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 & 1980
The objective is to enhance banking governance, improve audit transparency, strengthen depositor protection, and ensure a more robust regulatory framework for cooperative banks.
Why the Banking Laws (Amendment) Act, 2025 Was Needed
India’s expanding financial inclusion and rapidly increasing dependency on the banking system have introduced new complexities. To keep pace with technological advancements, sectoral growth, and modern compliance needs, it was essential to:
Provide clarity in asset succession and reduce disputes.
Establish uniform terminology for transparency in regulatory compliance.
Update statutory deadlines to align with accounting cycles, support automation, and reduce manual workload.
Adapt governance frameworks to meet contemporary banking demands.
The 2025 Amendment addresses these needs in the context of India’s fast-evolving digital and financial landscape.
Key Reforms Under the Banking Laws (Amendment) Act, 2025
1. Modern Nomination Framework (Sections 10–13)
Depositors can nominate up to four individuals jointly or sequentially.
Joint nomination allows percentage-wise allocation, totalling 100%.
Sequential nomination ensures smooth succession for deposits and locker contents.
2. Redefinition of “Substantial Interest” (Section 3)
Threshold increased from ₹5 lakh (1968) to ₹2 crore.
Strengthens governance standards and reduces risks of conflict of interest.
3. Governance Reforms in Cooperative Banks (Sections 4 & 14)
Maximum tenure for directors (except chairpersons and full-time directors) increased from 8 years to 10 years.
Aligns cooperative banks with the 97th Constitutional Amendment, promoting democratic governance and strengthening their institutional role.
4. Audit Reforms in Public Sector Banks (Sections 15–20)
PSBs can determine remuneration for auditors.
Unclaimed shares, interest, and bond redemption amounts can now be transferred to the Investor Education and Protection Fund (IEPF), aligning PSBs with practices followed under the Companies Act.
5. Improved Procedural Efficiency
Reporting deadlines modified:
Earlier: “last Friday” or “alternate Friday”
Now: last day of the month or last day of the fortnight, as applicable
Reduces ambiguity and aligns regulatory reporting with accounting practices.
Impact: Strengthening India's Banking Landscape
The implementation of these amendments marks a major step forward in enhancing the legal, regulatory, and administrative framework of India’s banking sector. The 2025 reforms are expected to deliver transformative benefits for depositors, cooperative banks, and service providers by strengthening governance, improving transparency, and ensuring better protection of customer interests.
