Tag: Goverment

Government’s Proposed Changes in Banking Laws

Government to Introduce Two Key Bills in Lok Sabha

The government is set to bring forward two significant Bills in the Lok Sabha for deliberation in the upcoming week commencing on August 5. The first of the two Bills pertains to amendments in the banking laws, while the second addresses modifications to the Oilfields (Regulation and Development) Act.

Changes in Banking Laws

The Union Cabinet, during its meeting on Friday, granted approval for the introduction of the ‘Banking Laws (Amendment) Bill 2024.’ While specific details are yet to be disclosed due to the ongoing parliamentary session, it is anticipated that the Bill will encompass alterations to various banking laws. This may include redefining substantial interest for directors, revising the number of nominees for bank accounts, and adjusting the dates for monthly reporting, among other amendments.

Under the current provision of the Banking Regulation Act, Section 45ZA allows a depositor to nominate one individual to whom the deposit amount shall be returned in the event of the depositor’s demise. However, sources suggest that the proposed amendment may raise the number of nominees to four.

Targeting Unclaimed Deposits

One of the primary objectives of the proposed changes is to address the issue of unclaimed deposits in banks. Data reveals a substantial increase in unclaimed deposits with public and private sector banks combined, reaching over ₹42,000 crore as of March 31, 2023, from around ₹33,000 crore a year earlier. Unclaimed deposits comprise balances in savings or current accounts that have remained inactive for 10 years, or term deposits that have not been claimed within 10 years from their maturity date. Such amounts are designated as ‘unclaimed deposits’ and are transferred by banks to the Depositor Education and Awareness (DEA) Fund maintained by the Reserve Bank of India.

Despite depositors retaining the right to claim these deposits along with accrued interest at a later date, the increasing trend in unclaimed deposits remains a concern. The proposal to allow for four nominees aims to mitigate the amount of funds categorized as unclaimed deposits.

Other Proposed Amendments

Further changes include the redefinition of ‘substantial interest’ for directorship. The current provision in the Banking Regulation Act defines ‘substantial interest’ as a beneficial interest held by an individual, their spouse, or minor child, either singly or collectively, in shares with a paid-up value exceeding ₹5 lakhs or 10% of the paid-up capital of the company, whichever is lesser. Reports indicate a proposal to increase the threshold for substantial interest in directorship to ₹2 crore or 10% of the paid-up capital.

Additionally, amendments are expected regarding the reporting dates and the tenure for directors in co-operative banks. The existing provision requires banks to report various compliances on the second and fourth Friday of every month, which is now proposed to be changed to the 15th and 30th day of each month. There is also an anticipated provision to limit the tenure of a director in a co-operative bank to 10 years.

These impending changes in banking laws and regulations hold significance for the banking industry and the overall economic landscape, with potential implications for stakeholders and consumers alike.

Government Proposal to Raise Deposit Nominees to 4: What It Means for Consumers

Proposed Amendments to Banking Laws Approved by Indian Union Cabinet

The Indian Union Cabinet has given the green light to a series of significant amendments to banking laws, aimed at addressing various financial matters to the benefit of account holders and the financial sector at large.

One of the key amendments is the provision to allow up to four nominees in deposit accounts, a substantial increase from the current allowance of one nominee for savings bank and fixed deposits. This move is intended to provide account holders with greater flexibility and options in managing their deposit accounts. Furthermore, the introduction of “successive and simultaneous” nominations seeks to alleviate hardship for customers, allowing joint account holders and heirs to access funds even after the demise of the primary account holder.

In addition to the amendments concerning deposit accounts, the proposed changes encompass reforms related to unclaimed deposits and funds. With unclaimed deposits reaching over Rs 78,000 crore as of March 2024, the amendments are a response to the mounting concern highlighted by Finance Minister Nirmala Sitharaman. The bill includes provisions to address unclaimed dividends and bonds, facilitating their transfer to the Investor Education Protection Fund (IEPF) in cases where the funds remain unclaimed.

Moreover, the amendments propose to grant banks greater autonomy in determining the remuneration for auditors, a responsibility previously mandated by the Reserve Bank of India (RBI). Additionally, the definition of shareholders with substantial interest is set to be revised, increasing the threshold from Rs 5 lakh to Rs 2 crore, marking a significant update from the previous limit set nearly six decades ago.

Furthermore, the bill seeks to redefine the reporting dates for banks for regulatory compliance, setting the dates as the 15th and last day of every month, as opposed to the current second and fourth Fridays. The proposed amendments also allow cooperative banks to appoint directors, other than the chairman and whole-time directors, for up to 10 years.

The exact details and provisions of these amendments are expected to be fully disclosed when Finance Minister Nirmala Sitharaman presents the bill in the Parliament, as the government and officials have maintained secrecy regarding the specific aspects of the plan.

The approval of these amendments represents a significant step towards addressing various concerns within the banking sector and underscores the Indian government’s commitment to ensuring the efficiency, transparency, and resilience of the financial system.