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Banking Laws (Amendment) Act, 2025 Comes into Force from 1 August to Strengthen Governance, Audit Transparency & Depositor Protection.

Banking & Finance | Dated: 02 Aug 2025

The Banking Laws (Amendment) Act, 2025, notified on 15 April 2025, came into effect on 1 August 2025 with the enforcement of key provisions. This landmark legislation amends five principal banking statutes—including the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949—through 19 reforms aimed at ushering in robust governance, depositor protection, audit transparency, and alignment of cooperative banks with constitutional norms.

🎯 Key Highlights:

  • - The Act redefines the definition of ‘substantial interest’—used for determining director eligibility—by raising the threshold from ₹5 lakh (unchanged since 1968) to ₹2 crore, ensuring that only economically significant stakeholders influence banking governance amid modern financial realities.
  • - Aligning with the 97th Constitutional Amendment, the maximum tenure of non-executive directors (excluding chairperson and whole-time directors) in cooperative banks has been extended from 8 to 10 years, fostering continuity and enhanced oversight in these member-driven institutions.

💡 Other Important Facts:

  • (i) Public Sector Banks (PSBs) are now permitted to transfer unclaimed shares, interest, and bond redemption proceeds to the Investor Education and Protection Fund (IEPF). This brings banking norms into coherence with the Companies Act, reinforcing investor protection and better utilization of dormant assets.
  • (ii) PSBs are granted new authority to determine remuneration for statutory auditors, enabling them to engage top-tier audit professionals and improve audit independence and transparency, which is expected to elevate governance standards across the banking sector.

📚 Test Your Knowledge:

Under the Banking Laws (Amendment) Act, 2025, what is the new threshold for ‘substantial interest’ to determine director eligibility in banks?

Correct Answer: ₹2 crore

🚀 Quick Recap: