The Banking Laws (Amendment) Bill, 2024, was presented in India’s parliament, which is crucial for improving the framework of banking in the country. It is aimed at achieving better governance, better protection of depositors, and improving the workings of banking processes in such a way that the Indian banking system can respond to the requirements of an economy that is steadily turning digital. Amendments proposed touch on several fundamental principles governing banking policy, and it is expected that their relative success will increase confidence in the sector among consumers and investors. These changes are anticipated to have a massive impact on the evolution of a country’s banking sector, increasing its stability, inclusivity, and resilience to prospective difficulties.

The Indian banking sector has an extensive history; however, over the years, a variety of inefficiencies have surfaced in this ecosystem, including lapses in governance, the protection of depositors, operational shortcomings, and systemic risks. Citizens’ trust in such institutions is often undermined by governance failures, especially in the case of cooperative banks. Therefore, the bill makes amendments, such as allowing the tenure of directors to increase from eight to ten years and suggesting changes in the criteria for members of banks’ boards, specifically in the case of cooperative banks. Encouragement of Central Cooperative Bank leaders to be included in the board of State Cooperative Banks improves coordination and decision-making across levels. It becomes even more important with respect to rural banking, in which the role of cooperative banks is crucial for increasing access to finance. They are intended to restore the stability of the leadership while improving the effectiveness as well as accountability of these organizations.

This legislation is driven foremost by the need to change the measurement of the phrase ‘substantial interest’ in a bank. The old threshold of ₹5 lakh was completely misplaced as it was not representative of the current financial milieu. Therefore, when this is moved to ₹2 crore the bill provides that only shareholders with serious monetary inputs will be able to dictate terms on the governance policies of the bank. This also reduces volatility and minimizes the chances of micromanagement from inactive majority tenure-holders, who would otherwise interfere in decisive structures ill-equipped to handle or contribute. Such advancements fortify beliefs in government reforms and enhance the possibility of reinforcing trust within the bank itself.

First, it is for the customer’s facility and, second, for the protection of the depositor that the Banking Laws (Amendment) Bill 2024 seeks to make amendments. The amendments made to this provision, allowing up to four nominees on one account, are doped to change the game as far as ease of succession is concerned. Generally, account holder families, especially deceased account holders, have had to try ordeals in their efforts to retrieve funds due to judicial bottlenecks. This amendment ensures that funds are available to families in times of need, by enabling a systematic nomination process with earmarked percentages or preferential orders. Such reform measures reflect a fundamental shift in customer approach, making it convenient and safe to use banking services.

The COVID-19 secrecy crisis pointed out several weaknesses in the comprehensive financial framework, especially regarding the succession and transfer of funds. It was apparent that reforms were long overdue when families were unable to access funds when needed during an emergency. Dealing with more than one nominee not only resolves the problem, but also brings Indian banking norms closer to international norms. Such client-friendly policies enable the public to build trust in the system and increase the likelihood of using formal banking services, thereby increasing the level of financial inclusion in the nation as a whole.

Furthermore, there have been certain changes pertaining to provisions relating to the transfer of unclaimed amounts to the Investor Education and Protection Fund (IEPF). This amendment extends the inclusion of the category of financial assets that can be transferred to the IEPF to unclaimed amounts, such as dividends, unclaimed shares, bonds, and interest or amount of bonds that remain unclaimed for seven years. This measure sees that such funds, which would sit idle if not used, are put into good use by being utilized in investor education campaigns and other investor protection activities. The IEPF acts as a fundamental mechanism to promote investor education and protect investors. At the same time, the amendment provides for a firm mechanism to ensure that those entitled to the dues have access to them through the procedures defined in the Companies Act, 2013. To achieve this dual purpose, the provision also seeks to ensure that client deposits are used meaningfully while enhancing accountability within the banking system. Such a reform makes more sense both in understanding the government’s determination to improve accountability and control the management of unclaimed funds; among other things, investors’ rights are protected.

Another fundamental factor in the changes is operational efficiency related to the amendments. At present, an institution’s compliance obligations constitute a torturous burden, as there have been a number of reports under the same deadlines. The bill further proposes to alter this practice by moving the submission of all the regulatory reports to the 15th and last day of every month, which eases the situation substantially as it decreases the workload and enables the institutions to concentrate on the core activities. This also ensures that the government regulator obtains the information it requires within time and can find the right information at the right time, enabling the regulatory body to act faster when new threats arise.

A further critical improvement is in the flexibility introduced in auditor remuneration. The intention of the legislation is to increase the likelihood of obtaining reputable auditing firms that are capable of performing an effective audit by allowing SFFs more discretion in setting the fees payable to independent auditors. Effective isolation of irregularities through robust auditing is essential for preventing financial mismanagement and the abuse of investors’ interests. Although this change places more power on banks, there should also be effective regulatory oversight to ensure that there are no conflicts of interest and that auditing standards are not compromised.

The possible consequences of these amendments are numerous. From a macroeconomic perspective, they are anticipated to improve the safety and soundness of the banking industry, thereby making it more competitive and attractive to investors. Enhanced governance and stronger depositor protection will probably result in increased public trust, which will, in turn, increase the level of engagement with formal banking systems. In the case of cooperative banks, reforms could result in greater resource pooling, better operational efficiency, and increased rural outreach. Better audit quality and efficient regulatory compliance mechanisms also enhance the transparency and accountability of the sector, further improving its standing in international capital markets. On the customer front, the amendments promised a significantly improved experience. It is going to be more convenient because the process of nominating a base and making multiple or single nominations would be easy. This change is particularly useful for families that are grieving because it cuts down on the red tape, which usually accompanies fund transfers. It is about enhancing banking practices to the level of expectations that customers have from it, and this bill makes India’s banking system much more user-friendly and useful.

However, the question is, from which date will all these amendments be sufficient to eliminate all the problems faced by the banking sector in India? While the Banking Laws (Amendment) Bill, 2024 is a big step in the right direction, it does not sufficiently address fundamental issues related to management, such as the Non-Performing Assets (NPAs) , limited information technology infrastructure, and lack of cyber security. The growing volume of non-performing assets also constitutes a threat to the stability of the sector, which calls for curing measures such as robust credit expansion, enforcement of recovery measures, and enhancing the valuation of recoverable securities. Similarly, with the digitalization thrust in the sector, the safeguarding of customer information and prevention of cyber-attacks is of paramount concern. There is a need for the digital future of the sector to invest in advanced technologies and proper data protection policies.

The proposed amendments did not solve the larger financial inclusion problem. For the sake of clarity, let me emphasize the fact that there has been some progress, but a sizable fraction of India’s population, particularly the rural and underbanked, still do not access formal banking services. Future reforms should aim to close these gaps by encouraging or providing incentives for banks to serve more markets and to develop appropriate products for disadvantaged groups. parameters of incentives, such as innovation-friendly policies including embedding fintech within traditional customs and digital banks, can be critical in actualizing these ambitions.

More importantly, the dynamics of international financial systems raise the issue of the need for constant regulation updates. The fact that this Amendment of 2024 Bill lays a strong foundation should not make one lose sight of the fact that this is a work in progress, and indeed, a great deal needs to be done in order to reform the banking sector in India. Further, it is important for policymakers and regulators to adopt a proactive mechanism whereby foreseen reforms are introduced in anticipation of future development.

Considering its remarkable capacity to fill up deficiencies in the Indian banking space, the Banking Laws (Amendment) Bill, 2024, has emerged as great legislation in terms of its advancement. It aims to focus on wider governance benefits, greater customer satisfaction, and simplification of business processes, which in effect lays down the foundation for a more advanced, accountable, and robust banking system,; however it remains to be seen how this decoupling of the Rawlsian fictive economy will actually be enforced, as it is just a statement that the reality of transformation is going to be complex, requiring ongoing scrutiny to ensure that other needed structural changes are achieved. Such a transformation is crucial when India aims to gather momentum towards a 5 trillion dollar economy, a fully functional and adaptive banking sector would only accelerate the growth and expansion of an inclusive economy.