Banking Laws (Amendment) Bill, 2024

Syllabus: Economy: Banking/ Polity

Source: TH

Context: A bill proposing changes to banking laws, including allowing up to four nominees for a bank account, was introduced in the Lok Sabha recently.

Objective of the Bill:

The Banking Laws (Amendment) Bill, 2024, aims to strengthen banking governance, enhance reporting consistency to the Reserve Bank of India (RBI), and improve protection for depositors and investors. The Bill seeks to elevate audit quality in Public Sector Banks and extend the tenure of directors in cooperative banks, excluding the chairperson and whole-time director. These changes are designed to ensure better oversight and accountability within the banking sector.

Key Provisions of the Bill:

Key Provisions | Description

Nominee Option | Allows account holders to designate up to four nominees for their bank accounts and lockers.

Simultaneous and Successive Nominations | Includes provisions for both simultaneous and successive nominations.

Substantial interest in shareholding | The threshold in shareholding has been increased from Rs 5 lakh to Rs 2 crore for directorships.

Provision for Cooperative Banks | Extends tenure of directors in cooperative banks from 8 years to 10 years

Transfer to Investor Education and Protection Fund (IEPF) | Unclaimed dividends, shares, interest, or redemption of bonds will be transferred to the Investor education and protection fund (IEPF). Individuals can claim these later.

Amendments to Existing Laws | Proposes amendments to the RBI 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.

Banking Sector in India:

India’s banking sector includes 137 scheduled commercial banks offering nationwide services, co-operative and local area banks serving various regions, and around 9,516 NBFCs and All India Financial Institutions targeting specific lending needs. Banking correspondents and outlets in every village ensure 99.97% coverage of inhabited villages, significantly enhancing rural banking accessibility.

Banking Landscape is governed by

Category | Description

Governance | Governed under Banking Regulations Act, 1949. Can be categorized into Scheduled Commercial Banks (SCBs) and Non-Scheduled Commercial Banks.

Scheduled Commercial Banks | Listed in the Second Schedule of the RBI Act, 1934. Must maintain minimum paid-up capital and reserves of ₹5 lakh. Prioritize depositor welfare.

Public Sector Banks | Constituted under the State Bank of India Act, 1955 and Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970/1980. 12 banks currently.

Private Banks | Licensed under Banking Regulation Act, 1949.

Private Sector Foreign Banks | Headquartered outside India but operate in India. Must follow RBI regulations and parent organization rules.

Regional Rural Banks (RRBs) | Established by the Narasimham Working Group (1975) and under Regional Rural Banks Act, 1976. Aim to provide credit for agriculture and rural sectors. Ownership: 50% Central Government, 35% Sponsor Bank, 15% State Government.

Small Finance Banks | Licensed under Banking Regulation Act, 1949. Aim to enhance financial inclusion by serving underserved sections including small businesses and farmers.

Payment Banks | Public limited companies licensed under Banking Regulation Act, 1949. Restricted to accepting demand deposits and providing payment and remittance services.

Insta Links

• RBI financial stability report

Mains Links

Enumerate the steps taken so far to expedite and enable the resolution of NPAs in India. Critically analyse the potential of National Asset Reconstruction Company Ltd (NARCL) as the “Bad Bank” in addressing the issue of NPAs.

How far can financial inclusion help in containing the high level of NPAs of banks in India? Substantiate your views with two examples. (200 words)

Prelims Links

Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (UPSC CSE 2017)

(a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.

(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

(d) It is an important provision in The Insolvency and Bankruptcy Code’ recently implemented by the Government.

Answer: B