New banking law kicks in today to boost governance, protect deposits

The Banking Laws (Amendment) Act, 2025 takes effect today, introducing key reforms to improve governance, enhance PSB audits, and safeguard depositors across India

Why it matters

India’s banking framework is undergoing its most comprehensive reform in years. With deposit safety, audit quality, and governance standards in focus, the Banking Laws (Amendment) Act, 2025 introduces structural changes that affect public sector banks, cooperative banks, and regulatory oversight.

 

The law brings India’s banking legislation in line with constitutional governance norms and modern corporate standards, enhancing accountability and depositor trust.

 

What’s new in the 2025 Banking Laws Amendment

The law, notified on April 15, 2025, comes into force from August 1, 2025, with selective enforcement of provisions over time.

 

It introduces 19 amendments across five key Acts:

1. The Reserve Bank of India Act, 1934
2. The Banking Regulation Act, 1949
3. The State Bank of India Act, 1955
4. The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970
5. The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980

 

Zoom in: Two major governance changes

1. Conflict-of-interest threshold raised

• Threshold for “substantial interest” redefined from ₹5 lakh to ₹2 crore
• The earlier threshold had remained unchanged since 1968
• This update strengthens conflict-of-interest checks for directors and improves compliance oversight

 

2. Cooperative bank director tenure extended

• Maximum tenure increased from 8 to 10 years (excluding chairpersons and whole-time directors)
• Aligns with the 97th Constitutional Amendment on cooperative governance
• Intended to enhance leadership continuity in cooperative institutions

Between the lines: Public sector banks get audit, compliance upgrade

IEPF alignment for PSBs

• PSBs can now transfer unclaimed shares, interest, and bond redemptions to the Investor Education and Protection Fund (IEPF)
• Brings PSBs in line with private-sector practices under the Companies Act

Remuneration for statutory auditors

• PSBs can now directly offer remuneration to statutory auditors
• Expected to attract higher-quality audit professionals and raise audit standards across the public banking system

 

What’s next

• RBI is expected to issue detailed implementation guidelines
• State-run and cooperative banks will update internal governance policies in response
• Legal experts foresee ripple effects for board constitution, audit independence, and conflict resolution frameworks