Lok Sabha passes Banking Laws (Amendment) Bill, allows 4 nominees in bank accounts

The Lok Sabha on Tuesday passed amendments to the banking laws permitting account holders to propose up to four nominees either successively or simultaneously.

With their respective shares, which will make inheritance of bank deposits smooth and unambiguous. The Banking Laws (Amendment) Bill, 2024 also proposes 19 amendments to five existing laws for the ease of compliance, better regulation and efficient auditing of banks, including multi-state cooperatives offering banking services, Union finance minister Nirmala Sitharaman said.

“The proposed amendments will only strengthen governance in Indian banking sector besides enhancing consumer’s and customer’s convenience with respect to nominations and protection of investors,” the minister said in her opening remarks in Lok Sabha on Tuesday.

Besides introducing people’s friendly multiple nomination provision to ensure deposits do not fall into the unclaimed category after the demise of an accountholder, amendments also bring some regulatory changes, including pragmatic deadlines for banks to file statutory reports to the central bank to keep the banking system robust.

Replying to queries related to the nomination, Sitharaman told the House that the current provision only allows the nomination of one person for the payment of the depositor’s money and article kept in safe custody or lockers. Explaining the benefit of the proposed amendments, she said they will enable individuals to nominate up to four persons for these facilities with options for “either” successive “or” simultaneous nominations.

She, however, specified that for articles kept in the safe-custody or safety lockers, only successive nominations will be allowed. “Successive nomination ensures that if the first nominee is unavailable, the next nominee in line will become operative, maintaining continuity and reducing complications [for] legal heirs,” she said.

“The proposed Bill seeks, inter alia, to improve governance standards provide consistency in reporting by banks to the Reserve Bank of India [RBI], ensure better protection for depositors and investors, improve audit quality in public sector banks, bring customer convenience in respect of nominations and to provide for increase in the tenure of the directors in co-operative banks,” she said in a written statement accompanying the Bill.

Speaking in the house before the passage of the legislation, the finance minister said Indian banks are robust compared to the shaky global banking system, particularly in some developed countries.

“Since 2014, we have been extremely cautious that banks remain stable,” she said adding that the government’s intention is to keep banks “safe, stable and healthy” and the outcome is visible in 10 years. Banks are now “professionally run” and it is a “national” achievement, she said.

The Bill, introduced in the Lok Sabha on August 9, proposed to amend five Acts – the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949 (or the BR Act), the State Bank of India Act, 1955, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.

Explaining the salient features of the amendments proposed in the Bill, the finance minister said in the accompanying note that the BR Act is amended to redefine “substantial interest”, increasing the threshold for shareholding of a beneficial interest by an individual, from ₹5 lakh to ₹2 crore, to reflect the present value. The amount of ₹5 lakh was determined in 1968.

The other amendment in the BR Act is aimed at increasing the tenure of directors (excluding the chairman and whole-time director) in cooperative banks from eight years to 10 years, to align with the existing legal provisions. Another amendment sought to allow a director of a central cooperative bank to serve on the board of a state cooperative bank. The law is also being amended to revise the reporting dates for the submission of statutory reports by banks to RBI for consistency in reporting.

Amendments to other laws are proposed to provide for the transfer of unclaimed dividends, shares, and interest or redemption of bonds to the Investor Education and Protection Fund, and allow individuals to claim transfers or refunds from that fund. The Bill also provides for discretion to public sector banks in the matter of remuneration of auditors.