India may allow four nominees to a bank account: Here's all you need to know about it
Aug 9, 2024
Synopsis
Banking Laws Amendment Bill: Finance Minister Nirmala Sitharaman introduced new Bills in the Lok Sabha on Friday, including the Banking Laws (Amendment) Bill, 2024. The Bill aims to amend the Reserve Bank of India Act, the Banking Regulation Act, and the State Bank of India Act. Key proposed changes include increasing the number of nominees per bank account and redefining 'substantial interest' for directorships by raising the limit to Rs 2 crore from the current Rs 5 lakh.
Union Finance Minister Nirmala Sitharaman introduced the Banking Laws (Amendment) Bill, 2024, in the Lok Sabha, aiming to make significant changes to several key banking regulations.
The proposed amendments will affect the Reserve Bank of India Act, the Banking Regulation Act, and the State Bank of India Act, among others.
One of the key proposals in the Bill is to increase the number of nominees allowed per bank account from the current limit of one to four, reported PTI. This change aims to offer greater flexibility and choice to account holders.
The bill also aims to move unclaimed dividends, shares, and bond payments to the Investor Education and Protection Fund (IEPF). This change will allow people to claim these funds or get refunds, helping to protect investors' interests.
Additionally, the Bill proposes to redefine the concept of 'substantial interest' for bank directorships, raising the threshold from the existing Rs 5 lakh to Rs 2 crore, reflecting an update to a limit that has been in place for nearly 60 years.
The proposed bill aims to elevate governance standards, ensure uniform reporting by banks to the Reserve Bank of India, enhance protection for depositors and investors, improve audit quality in public sector banks, streamline customer convenience regarding nominations, and extend the tenure of directors in cooperative banks.
As the banking sector has progressed over the years, and to enhance bank governance and safeguard investors, it has become essential to amend five key Acts, according to the Bill's Statement of Objects and Reasons.
India's cabinet had approved the Bill last week. It proposes to amend the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, 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.
The Bill also seeks to give banks more autonomy in deciding the remuneration for statutory auditors, allowing for greater freedom in financial management. Furthermore, it aims to adjust the reporting dates for regulatory compliance, proposing a shift from the current schedule of the second and fourth Fridays of each month to the 15th and last day of every month.
The amendments also include modifications to the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.
Congress member Manish Tewari opposed the Bill, arguing that the authority to legislate on cooperatives lies with state governments. RSP member N.K. Premachandran criticized the approach of amending five laws with a single bill, while TMC member Saugata Roy called the bill "superfluous," suggesting that the proposed changes could have been made through administrative decisions.
In response, Finance Minister Nirmala Sitharaman noted that the amendments to the Banking Regulations Act concerning cooperative banks are numerous, not just a few.
"Simple understanding is we are not touching any aspect of the cooperatives other than that which claims under the name of banking...the sections which have been brought in for amendments, as also the court verdicts, have repeatedly reinforced the point that Banking Regulation Act and the Cooperative Banks do have this relationship and therefore it has to be taken through this route," she said.
Sitharaman there is no intention to undermine cooperatives, especially those involved in areas other than banking.
The introduction of this Bill follows the Finance Minister's announcement during the 2023-24 Budget speech, where she emphasised the need for reforms in the banking sector to strengthen governance and safeguard the interests of investors.
The bill proposes extending the tenure of directors (excluding the chairman and whole-time director) in cooperative banks from 8 years to 10 years, aligning with the Constitution (Ninety-Seventh Amendment) Act, 2011.
If passed, the bill would permit a director of a Central Cooperative Bank to also serve on the board of a State Cooperative Bank.
Additionally, the bill aims to give banks more flexibility in setting the remuneration for statutory auditors.
It also seeks to change the reporting dates for banks’ regulatory compliance to the 15th and last day of each month, instead of the second and fourth Fridays.
"What's the rationale behind it? The current reporting Friday sytem has several limitations that impact the accuracy and effectiveness of the reporting of data...These limitations are incomplete coverage of monthly data, seasonal fluctuations in banking activity which lead to inconsistent reporting, and the need for adjustment every 11th year which introduces complications and inconsistencies. That is why, in order to address the issue, it is proposed to amend the legislation," Sitharaman said.
[The Economic Times]
