Lok Sabha Passes Banking Laws (Amendment) Bill 2024

Lok Sabha Passes Banking Laws (Amendment) Bill 2024

Sub : Eco

Sec: Monetary Policy

Key Highlights of the Bill

• Increased Nominee Limit: Bank account holders can now nominate up to four nominees.
• Substantial Interest Redefined: The limit for “substantial interest” in directorships raised from ₹5 lakh to ₹2 crore.
• Extended Director Tenure: Tenure of directors (excluding chairpersons and whole-time directors) in cooperative banks increased from 8 years to 10 years.
• Central-State Cooperative Bank Link: Directors of Central Cooperative Banks can now serve on State Cooperative Bank boards.
• Statutory Auditor Remuneration: Banks will have greater freedom in determining remuneration for statutory auditors.
• Updated Reporting Dates: Regulatory compliance reporting dates revised to the 15th and last day of each month, replacing the second and fourth Fridays.

Reasons for the Amendment

• Enhancing Governance:
  • Strengthens governance within banks to protect depositors and investors while improving audit quality.
• Improving Customer Convenience:
  • Simplifies inheritance processes by allowing multiple nominees, reducing unclaimed deposits.
• Constitutional Alignment:
  • Director tenure extension aligns banking laws with the Constitutional amendments governing cooperative societies.

Significant Impacts

• Enhanced Customer Experience:
  • Multiple nomination options offer smoother transitions in account management after the account holder’s death.
• Stronger Governance Framework:
  • Redefining “substantial interest” and extending director tenure improves decision-making and accountability in cooperative banks.

Substantial Interest:

“Substantial Interest” typically refers to a significant level of ownership, control, or stake in a business or entity by an individual or another entity.

Under Indian tax laws (Income Tax Act, 1961), a person is considered to have a substantial interest in a business if they, either individually or along with their relatives, own 20% or more of the company’s voting power or capital and is used to regulate related party transactions, avoid conflicts of interest, and monitor income attribution for tax purposes.