Bill to provide up to four nominees to a bank account introduced in LS

New Delhi: A bill seeking to provide for four nominees by a bank account holder was introduced in the Lok Sabha on Friday to ensure better protection of depositors and enhance customer convenience.

Introduced by Minister of State for Finance Pankaj Chaudhary in the Lower House, the Banking Laws (Amendment) Bill, 2024, has a provision for simultaneous and successive nominations to bank accounts, lockers etc.

As per the provision of the bill, a bank account holder can nominate up to four persons.

The bill also seeks to transfer of unclaimed dividends, shares, and interest or redemption of bonds to the Investor Education and Protection Fund (IEPF), allowing individuals to claim transfers or refunds from the fund, thus safeguarding investors' interests.

As the banking sector has evolved over the years and with a view to improving bank governance and investor protection, it has become necessary to make certain amendments to five Acts, according to Statement of Objects and Reasons of the Bill.

The Bill, which was approved by the Union Cabinet last week, 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 proposed bill seeks to improve governance standards, provide consistency in reporting by banks to the Reserve Bank of India, ensure better protection for depositors and investors, improve audit quality in public sector banks, bring customer convenience in respect of nominations and to provide for increase in the tenure of the directors in co-operative banks.

Therefore, it was felt necessary to amend the said enactments and for that purpose to introduce the Banking Laws (Amendment) Bill, 2024 in Parliament.

Another proposed change relates to redefining 'substantial interest' for directorships, which could increase to Rs 2 crore instead of the current limit of Rs 5 lakh, which was fixed almost six decades ago.

Congress member Manish Tewari opposed the introduction of the Bill saying the power to legislate with regard to cooperatives vests with state governments. RSP member N K Premachandran opposed amending five legislations through one bill, while TMC member Saugata Roy termed the bill "superfluous" saying the the amendments proposed in the bill could have been done through administrative decisions.

Responding to opposition's remarks, Finance Minister Nirmala Sitharaman said the various amendments done in Banking Regulations Act with respect to cooperative banks are not just one or two but several.

"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.

Otherwise, there is no attempt to undermine the cooperatives, particularly cooperatives dealing with everything other than banks, she said defending the Bill.

The bill proposes to increase the tenure of directors (excluding the chairman and whole-time director) in cooperative banks from 8 years to 10 years, so as to align with the Constitution (Ninety-Seventh Amendment) Act, 2011.

Once passed, the bill would allow a director of a Central Cooperative Bank to serve on the board of a State Cooperative Bank.

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

It also seeks to redefine the reporting dates for banks for regulatory compliance to the 15th and last day of every 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," she said.

The announcement about amendments to the Banking Regulation Act was made by the Finance Minister in the 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.