What Changes Will the New Banking Laws Bring to India's Financial Sector?

New Banking Laws Set to Transform Governance

New Delhi: The Finance Ministry announced that the Banking Laws (Amendment) Act, 2025, designed to enhance governance in the banking industry and bolster protections for depositors and investors, will take effect on August 1.

This Act, which was officially notified on April 15, aims to elevate the quality of audits in public sector banks and extend the tenure of Directors (excluding the Chairperson and whole-time Directors) in cooperative banks.

One of the key changes includes redefining the threshold for 'substantial interest' from Rs 5 lakh to Rs 2 crore, a limit that has not been updated since 1968.

Additionally, the Act aligns the tenure of Directors in cooperative banks with the 97th Constitutional Amendment, increasing the maximum term from 8 years to 10 years.

Public sector banks will also gain the ability to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF), aligning their practices with those of companies under the Companies Act. Furthermore, the amendments allow public sector banks to compensate statutory auditors, which is expected to attract high-quality audit professionals and improve audit standards.

The introduction of these provisions signifies a crucial advancement in fortifying the legal, regulatory, and governance framework of India's banking sector, as stated by the ministry.

The Banking Laws (Amendment) Act, 2025 encompasses 19 amendments across five key legislations: the Reserve Bank of India Act, 1934; the Banking Regulation Act, 1949; the State Bank of India Act, 1955; and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.

The Central government has set August 1, 2025, as the date for the enforcement of sections 3, 4, 5, 15, 16, 17, 18, 19, and 20 of the Banking Laws (Amendment) Act, 2025, as detailed in the Gazette Notification dated July 29, 2025.