Banking Laws (Amendment) Act, 2025: Key Provisions to Take Effect from Aug 1

The Banking Laws (Amendment) Act, 2025, is set to come into effect on August 1, with key provisions aimed at enhancing bank governance, safeguarding depositors, improving public sector bank (PSB) audits, and aligning cooperative banks with constitutional norms.

The threshold for “substantial interest” has been increased from Rs 5 lakh to Rs 2 crore, a limit that had remained unchanged since 1968. This amendment aims to modernise the definition of substantial interest in line with current economic conditions.

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The maximum tenure for directors in cooperative banks has been extended from 8 years to 10 years, excluding the chairperson and whole-time director. This aligns with the 97th Constitutional Amendment and aims to promote stability in cooperative bank management.

Public sector banks will now be permitted to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF), similar to practices followed by companies under the Companies Act.

PSBs will be empowered to offer remuneration to statutory auditors, facilitating the engagement of high-quality audit professionals and enhancing audit standards.

The implementation of these provisions marks a significant step towards strengthening the legal, regulatory, and governance framework of the Indian banking sector. The amendments aim to improve governance standards in the banking sector, ensure enhanced protection for depositors and investors, improve audit quality in public sector banks, and increase the tenure of directors in cooperative banks.

The Banking Laws (Amendment) Act, 2025, which was notified on April 15, contains 19 amendments across five legislations, including the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, State Bank of India Act, 1955, and Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980.