India’s Banking Laws (Amendment) Act, 2025 comes into force on August 1, introducing major governance reforms, enhanced audit standards, and stronger investor protections. Key changes include updated thresholds for “substantial interest,” extended director tenures in cooperative banks, and provisions for handling unclaimed financial assets in public sector banks.
The Indian banking sector is set to undergo significant transformation starting August 1, 2025, as the Banking Laws (Amendment) Act, 2025 officially comes into effect. This landmark legislation, which was notified on April 15 earlier this year, introduces a comprehensive set of reforms aimed at strengthening governance frameworks, enhancing audit quality, and ensuring better protection for depositors and investors.
According to a statement released by the Finance Ministry on Wednesday, the Act is expected to bring about substantial changes across key areas of the banking ecosystem, particularly in public sector and cooperative banks.
Key Highlights of the Banking Laws (Amendment) Act, 2025
The Act introduces 19 amendments across five major legislations:
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The Banking Regulation Act, 1949
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The State Bank of India Act, 1955
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The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980
Aimed at boosting transparency, governance, and accountability, the reforms will affect a wide range of banking practices, including audit protocols, director tenures, and handling of unclaimed financial instruments.
Redefining “Substantial Interest”
One of the key amendments involves redefining the threshold of “substantial interest” in a banking entity. Previously capped at ₹5 lakh—a figure unchanged since 1968—the new law raises the limit to ₹2 crore. This move is designed to bring the definition in line with modern economic realities and to ensure more accurate governance scrutiny.
Extended Tenures for Directors in Cooperative Banks
The Act also aligns the tenure of Directors (excluding the Chairperson and whole-time Directors) in cooperative banks with the 97th Constitutional Amendment. Under the new provisions, the maximum tenure is increased from 8 years to 10 years. This adjustment aims to enhance stability and leadership continuity within cooperative banking institutions.
Audit Quality and Statutory Remuneration
In an effort to improve transparency and oversight, public sector banks will now be authorized to provide remuneration to statutory auditors. This change will help attract and retain high-quality audit professionals, thereby improving the overall audit standards in the sector. It is seen as a critical measure for bolstering trust in the financial statements of public sector banks.
Unclaimed Funds to be Transferred to IEPF
The amendments also bring public sector banks in line with corporate practices by allowing them to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF). This harmonization with the Companies Act ensures a more efficient and transparent management of dormant financial assets.
Implementation Timeline
The government has formally notified August 1, 2025, as the date for implementing sections 3, 4, 5, 15, 16, 17, 18, 19, and 20 of the Act. This was detailed in a Gazette Notification dated July 29, 2025. These sections include the key operational reforms, particularly those affecting cooperative banks, audit policies, and investor protection mechanisms.
A Step Towards Stronger Financial Governance
The Finance Ministry emphasized that the enforcement of these provisions marks a “significant step towards strengthening the legal, regulatory, and governance framework of the Indian banking sector.” With the rising importance of robust financial governance in a growing economy, these reforms are expected to not only protect investor interests but also foster greater public confidence in India’s banking institutions.
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As India continues to modernize its financial infrastructure, the Banking Laws (Amendment) Act, 2025 signals a proactive approach by the government to enhance compliance, safeguard public funds, and create a transparent banking environment conducive to sustainable growth.
