Banking law amendments to make inheritance of deposits unambiguous

To improve governance, customer services says experts

The amendments to banking laws are expected to improve governance in the institutions, enhance customer convenience, and reduce litigations, according to bankers and experts.

 

The amendment to allow four nominees in an account in particular will make inheritance of bank deposits unambiguous, they said.

 

The Banking Laws (Amendment) Bill, 2024 -- which proposes 19 amendments to five laws -- was passed in Lok Sabha on Tuesday.

 

These proposed changes are aimed at easing compliance, improving regulation, and enhancing the efficiency of auditing in banks, including multi-state cooperatives providing banking services.

 

Satish Marathe, central board director, Reserve Bank of India (RBI) said these amendments would help make working of banks better and improve customer services.

 

Seconding Marathe’s observation, Sanjay Agarwal, Senior Director, CARE Ratings said the proposed amendments represent the government’s effort to streamline various processes within the banking sector, with the aim of enhancing operational efficiency.

 

The changes in provision will now permit account holders to propose up to four nominees either successively or simultaneously with their respective shares. This would make inheritance of bank deposits smooth and unambiguous, two public sector bankers said.

 

According to Rajeev Dewal, Senior Adviser-Legal, Indian Banks Association, bank customers would now benefit from easier deceased claims settlement. Additionally, he said the changes will need modification to safe custody/locker management systems. This will entail changes to nomination rules under the Banking Regulation Act and introduction of new formats of nomination for successive nominations.

 

Marathe, who earlier worked as CEO of a private bank, also said it will make the process transparent as more persons will have information, and it will reduce litigation in families. 

 

Remuneration of statutory auditors

 

The lower house of the Parliament also approved an amendment seeking to give greater freedom to banks in deciding the remuneration of statutory auditors.

 

Dewal said it will help public sector banks to engage suitable auditors at appropriate remuneration.

 

Corporates are allowed to determine the remuneration of their auditors, and since banks are also corporate entities, they should not be treated differently. The amendment empowers banks to fix the remuneration for their auditors, rather than having the Reserve Bank of India determine it.

 

This change is expected to enhance audit quality within the banking sector, said Agarwal of CARE Ratings.

 

Increased tenure of cooperative bank directors  

 

Another amendment increases the tenure of directors in cooperative banks from eight years to 10 years to align it with the Constitution (97th Amendment) Act, 2011.

 

Marathe said this brings relief to the cooperative sector as this will align tenure (in co-operatives) with the banking system. Besides positive contribution to corporate governance, amendment signals diligence required for functionaries for dealing with the public money.

 

Also the amendment allows a director of a central cooperative bank to serve on the board of a state cooperative bank. Presence of directors of district central co-operative banks (DCCBs) on boards would enable more effective coordination with the constituent DCCBs, Dewal said.  

In a nutshell

> Bank customers to benefit from easier deceased claims settlement 

> Amendments may lead to reduction in family litigation 

> Amendments may require introduction of new formats of nomination for successive nominations

> Changes will enhance operational efficiency of the sector