Union Budget FY26: Key banking amendments in the spotlight, yet again

Among the most-watched moves pertaining to the banking sector will be possible changes to the RBI Act, the Banking Regulation Act and the Banking Companies Act

It is that time of the year again when the Union Budget upon us. Finance Minister Nirmala Sitharaman is expected to present the Budget tomorrow morning, under the clouds of slowing growth, a falling rupee, and a conspicuous decline in demand. 

In the banking sector, follow-through moves to the Union Budget FY24's proposed amendments to the Reserve Bank of India Act (RBI Act), 1934; the Banking Regulation Act (BR Act), 1949; and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 will be in focus. 

It was widely believed by industry watchers that these amendments would be taken up after a new government was sworn in following the results of the general election in June 2024. 

The re-look at the key Acts is be read together with the setting up last week of a new standing external advisory committee (SEAC) to evaluate applications for universal banks and small finance banks (SFBs) with former Reserve Bank of India (RBI) deputy governor M K Jain as its chairperson. Other members are Revathy Iyer, director, central board, RBI; Parvathy V Sundaram, former executive director, RBI; Hemant G Contractor, former managing director (MD), State Bank of India, and former chairman, Pension Fund Regulatory and Development Authority; and N. S. Kannan, former MD and chief executive officer, ICICI Prudential Life Insurance. 

The first SEAC to evaluate new banking licenses was set up in March 2021, headed by former RBI deputy governor Shyamala Gopinath. 

The RBI’s Internal Working Group (IWG) to 'Review extant ownership guidelines and corporate structure for Indian private sector banks' had on November 20, 2020, made a case for large corporate and industrial houses as promoters of banks. It was aimed at converting large non-banking financial companies with an asset size of at least Rs 50,000 crore, including those owned by corporate houses, into banks. 

Playing in the background is the execution of the roadmap for conversion of existing SFBs into universal banks and payment banks into SFBs: the RBI had said that these entities will be considered for an upgrade after completion five years of operations, a condition that was part of the license terms. 

Mint Road neither accepted nor rejected the IWGs recommendation that large corporate houses should be allowed to promote banks “only after necessary amendments” to the Banking Regulations Act (1949). But it accepted 21 out of 33 recommendations of the IWG even as it offered no comment on the issue of granting banking licences to corporate houses.

What to watch out for

 

Follow-through to Budget FY24's proposed amendments to the Reserve Bank of India Act (RBI Act), 1934; the Banking Regulation Act (BR Act), 1949; and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970

 

RBI's new standing external advisory committee to evaluate applications for universal banks and small finance banks (SFBs)

 

Roadmap for conversion of existing SFBs into universal banks and payment banks into SFBs