What's Brewing

Recently, the Ministry of Finance, Government of India, introduced a bill in Lok Sabha with the objective of amending in certain provisions of the following existing Acts:

1. Reserve Bank of India Act of 1934
2. Banking Regulations Act of 1949
3. State Bank of India Act of 1955
4. Banking Companies (Acquisition & Transfer of Undertakings) Act of 1970
5. Banking Companies (Acquisition & Transfer of Undertakings) Act of 1980

The salient among these amendments are given below:

Amendments proposed in Reserve Bank of India Act of 1934

1. The time period of ‘fortnight’ is to be amended to mean (a) from 1st day to 15th day of the month and  (b) from 16th day to the last day of the month.
   – Originally, RBI Act had defined a ‘fortnight’ to mean: from a Saturday to the second Friday following that Saturday, both days inclusive.
   – ‘Fortnight’ was and is the time frame for calculating the ‘average daily balance’ of any bank that is to be kept by the bank in RBI as cash reserve.

Amendments proposed in Banking Regulations Act of 1949

1. Monetary threshold limit for ‘substantial interest’ shall be (a) Rs.2 crores or any amount as notified by central govt, in case of companies, as against earlier Rs.5 lakhs or 10% of total  paid-up capital (b) no change in threshold limit for firms, which remains at 10% of total capital subscribed by all partners.
   – ‘substantial interest’ is deemed by a bank to be held by shareholder in a company or partner in a firm, if they hold shares/partnership of monetary value described above.
2. Tenure of director in bank’s Board is to be extended to 10 years from existing 8 years. This provision shall not apply to Chairman or whole time Director.
3. Prohibition of a director to simultaneously be on Boards of more than one bank shall henceforth not be applicable to directors of central co-operative banks when they are appointed to state co-operative banks. Earlier, only RBI-appointed directors could serve on more than one bank’s Boards.
4. As against single Nominee named for deposits or lockers or articles in safe custody, Bill allows up to 4 Nominees. If named successively, they will receive the deposits/articles in descending order of their names. If named simultaneously, they will receive the proceeds in the proportions specified in the nominations.

Amendments proposed in State Bank of India Act of 1955            

Whereas earlier, only money unclaimed/unpaid against dividends declared by SBI to its shareholders was to be transferred to its ‘Unpaid Dividend Account’ and after 7 years to Investor Education and Protection Fund (created under Companies Act), the Bill intends to also enable the transfer of (a) all shares for which dividend is unclaimed/unpaid for 7 years and (b) interest and redemption amounts unclaimed/unpaid for 7 years, to the Fund.

Amendments proposed to Banking Companies (Acquisition & Transfer of Undertakings) Act of 197
The Act of 1970 defines the *‘corresponding new bank’ as the Bank contained in its First schedule. (Reproduced below) 

1. Similar to the amendment proposed to SBI Act, all shares for which dividend is unclaimed or unpaid by the *corresponding new bank for 7 years and interest and redemption amounts unclaimed or unpaid by the new bank shall also now be transferred to Investor Education and Protection Fund.

As contained in the First Schedule of the 1970 Act 

Amendments proposed to Banking Companies (Acquisition & Transfer of Undertakings) Act of 1980
The Act of 1980 defines the *‘corresponding new bank’ as the Bank contained in its First schedule. (Reproduced below)

1. Similar to the amendment proposed to SBI Act, all shares for which dividend is unclaimed or unpaid by the *corresponding new bank for 7 years and interest and redemption amounts unclaimed or unpaid by the new bank shall also now be transferred to Investor Education and Protection Fund.

*As contained in the First Schedule of the 1980 Act 

The amendments are seemingly minor in nature but are intended to facilitate efficient functioning of the banking system.

For full text of the Bill:
https://prsindia.org/files/bills_acts/bills_parliament/2024/Banking_Laws_(Amendment)_Bill_2024_Bill_Text.pdf