The Banking Laws (Amendment) Bill, 2024, introduced today by Finance Minister Nirmala Sitharaman in the Lok Sabha, proposes to allow customers of banks to name up to four nominees to their accounts instead of one earlier.

The other significant change relates to redefining 'substantial interest' for directorships, which could increase to Rs 2 crore from the existing limit of Rs 5 lakh, which was fixed nearly 60 years ago.

The Bill also seeks to give banks greater freedom in deciding the remuneration to be paid to statutory auditors.

It also proposes changing the reporting dates for banks for regulatory compliance to the 15th and last day of each month, replacing the current second and fourth Fridays.

Approved by the Union Cabinet last Friday, the Bill proposes to amend several laws, including the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980.

Congress member Manish Tewari opposed the introduction of the Bill saying the power to legislate with regard to cooperative societies vests with state governments.

Sitharaman responded, saying the banking regulation act and the cooperative banks do have a relationship and hence any amendment has to be taken through this route.

"There is no attempt to undermine the cooperatives, particularly cooperatives dealing with everything other than banks. Banks, cooperatives with a licence for banking will have to have a rule and therefore we have shown this," Sitharaman said.

On nominees, the Bill says that the nomination must cover “the whole amount of the deposit” and “explicitly state the proportion of amount of deposit in percentage in favour of each nominee”.

If one of the nominees dies and is not around to receive the sum, the nomination in respect of this person will become “ineffective”.

In such a case, “the amount of deposit ….nominated in favour of the deceased nominee…shall be treated as if (the) nomination had not been made in respect of that portion of the deposit”.

Bankers are awaiting more clarity from the regulator as they expect to encounter practical problems once the bill is passed.

The announcement about amendments to the Banking Regulation Act was made by the Finance Minister in her 2023-24 Budget speech.

"To improve bank governance and enhance investors' protection, certain amendments to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act are proposed," she had said.

The new legislation will need to be debated and passed by the House.