New banking law kicks in today to boost governance, protect deposits
New Delhi, Aug 1, 2025
The Banking Laws (Amendment) Act, 2025 takes effect today, introducing key reforms to improve governance, enhance PSB audits, and safeguard depositors across India
India’s banking framework is undergoing its most comprehensive reform in years. With deposit safety, audit quality, and governance standards in focus, the Banking Laws (Amendment) Act, 2025 introduces structural changes that affect public sector banks, cooperative banks, and regulatory oversight.
The law brings India’s banking legislation in line with constitutional governance norms and modern corporate standards, enhancing accountability and depositor trust.
What’s new in the 2025 Banking Laws Amendment
The law, notified on April 15, 2025, comes into force from August 1, 2025, with selective enforcement of provisions over time.
It introduces 19 amendments across five key Acts:
The Reserve Bank of India Act, 1934
The Banking Regulation Act, 1949
The State Bank of India Act, 1955
The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970
The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
Zoom in: Two major governance changes
1. Conflict-of-interest threshold raised
Threshold for “substantial interest” redefined from ₹5 lakh to ₹2 crore
The earlier threshold had remained unchanged since 1968
This update strengthens conflict-of-interest checks for directors and improves compliance oversight
2. Cooperative bank director tenure extended
Maximum tenure increased from 8 to 10 years (excluding chairpersons and whole-time directors)
Aligns with the 97th Constitutional Amendment on cooperative governance
Intended to enhance leadership continuity in cooperative institutions
IEPF alignment for PSBs
PSBs can now transfer unclaimed shares, interest, and bond redemptions to the Investor Education and Protection Fund (IEPF)
Brings PSBs in line with private-sector practices under the Companies Act
Remuneration for statutory auditors
PSBs can now directly offer remuneration to statutory auditors
Expected to attract higher-quality audit professionals and raise audit standards across the public banking system
What’s next
RBI is expected to issue detailed implementation guidelines
State-run and cooperative banks will update internal governance policies in response
Legal experts foresee ripple effects for board constitution, audit independence, and conflict resolution frameworks
[The Business Standard]
