Why in the News?

On Tuesday, December 3, 2024, the Lok Sabha passed the Banking Laws (Amendment) Bill, 2024, marking the first piece of legislation to be approved during the Winter Session after the resolution of a week-long impasse.

What are the key features of the Banking Laws (Amendment) Bill, 2024?

• Nomination Provisions: The Bill allows bank account holders to nominate up to four individuals for their accounts, with options for either successive or simultaneous nominations. However, locker holders will only have the option for successive nominations.
• Redefinition of “Substantial Interest”: The threshold for defining “substantial interest” for directorships is proposed to increase from ₹5 lakh to ₹2 crore, reflecting current economic conditions.
• Tenure of Directors: The tenure of directors (excluding chairpersons and whole-time directors) in cooperative banks will be extended from eight years to ten years, aligning with provisions in the Constitution (Ninety-Seventh Amendment) Act, 2011.
• Common Directorships: The Bill permits directors of Central Cooperative Banks to serve on the boards of State Cooperative Banks under certain conditions.
• Auditor Remuneration: It grants banks greater flexibility in determining the remuneration for statutory auditors, which was previously regulated by the Reserve Bank of India (RBI) and the central government.
• Reporting Dates: The reporting dates for regulatory compliance will shift from the second and fourth Fridays to the 15th and last day of every month, streamlining oversight processes.

What are the reasons for this amendment?

• Enhancing Governance: The amendments aim to strengthen governance standards within banks, ensuring better protection for depositors and investors while improving audit quality in public sector banks.
• Customer Convenience: By allowing multiple nominations, the Bill intends to simplify inheritance processes related to bank deposits and reduce instances of unclaimed deposits after an account holder’s demise.
• Alignment with Constitutional Provisions: Increasing director tenures in cooperative banks aligns banking regulations with constitutional amendments that govern cooperative societies.

What would be the significant impact of this amendment?

• Improved Customer Experience: The ability to nominate multiple individuals enhances customer convenience and ensures smoother transitions in account management after an account holder’s death.
• Strengthened Governance Framework: By redefining substantial interest and increasing director tenures, the Bill aims to foster a more robust governance framework within cooperative banks, potentially leading to better decision-making and accountability.
• Regulatory Compliance Efficiency: Changing reporting dates is expected to improve compliance efficiency, allowing banks to better align their reporting practices with regulatory requirements.

What is the criticism faced by the Banking Laws (Amendment) Bill, 2024?

• Concerns Over Financial Practices: Opposition leaders raised concerns regarding rising imports from China amid strained relations and questioned broader financial practices like demonetization and electoral bonds.
• Banking Fees and Cybersecurity Risks: Critics highlighted issues related to fees for basic banking services such as ATM withdrawals and SMS alerts, particularly emphasizing vulnerabilities faced by senior citizens concerning cyber fraud.
• Economic Context: Some opposition members criticized the timing of the Bill against a backdrop of economic challenges such as inflation exceeding growth rates, potentially leading to stagflation. They expressed skepticism about whether these amendments would effectively address underlying economic issues.

Way forward: 

• Addressing Broader Economic Concerns: The government should focus on macroeconomic reforms to manage inflation and foster sustainable growth. The Banking Laws Amendment should be complemented by policies that address the root causes of economic challenges, ensuring the banking sector thrives amidst broader financial stability.
• Strengthening Cybersecurity and Customer Protection: Banks should enhance security measures, especially for senior citizens, to safeguard against rising cyber fraud.

Mains question for practice:

Q The Banking Laws (Amendment) Bill, 2024, introduced several changes aimed at strengthening governance within the banking sector and enhancing customer convenience. Critically analyze the key features of the Bill, its reasons for introduction, and its potential impact on the banking sector. (250 words) 15M

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