The Banking Regulations (Modification) Act, 2025

What Is It?

A thorough reform law announced by the Ministry of Finance, the Act modifies 5 crucial legislations regulating the Indian banking industry to enhance governance, transparency, and depositor protection.

Main Goals:

Enhance governance systems in banks.

Guarantee the safety of depositors and investors.

Improve the quality of audits in public sector banks (PSBs).

Harmonize cooperative bank regulations with constitutional norms.

Main Characteristics of the Legislation

Revising the ‘Significant Interest’ Benchmark:

The threshold for 'substantial interest' in banks is updated from ₹5 lakh to ₹2 crore.

This updates obsolete limits (unchanged since 1968) to account for inflation and industry expansion.

Revamping Director Terms in Cooperative Banks:

Tenure increased from 8 to 10 years (excluding chairperson and full-time directors), aligning with the 97th Constitutional Amendment.

Assets Without Claim to the Investor Education and Protection Fund (IEPF):

PSBs are now able to transfer unclaimed shares, interests, and bond redemptions to the IEPF.

This brings PSBs in line with the Companies Act standards, promoting effective fund recycling.

Audit Clarity and Independence:

PSBs have the authority to set compensation for statutory auditors, enhancing audit quality and facilitating the hiring of top-level experts.

Optimizing Regulatory Reporting:

Reporting timelines to RBI are changed from “every Friday” to the end of the fortnight/month/quarter, reducing operational strain and enhancing data relevance.

Importance for the Indian Banking Industry:

Revamps Regulatory Standards: Revises outdated 50-year-old regulations to align with contemporary financial conditions.

Enhances Accountability of Cooperative Bank: Aligns term regulations with constitutional requirements for democratic operations.

Enhances Depositor Trust: Through the protection of unclaimed assets and the enhancement of audit practices.