Banking Laws (Amendment) Act, 2025: Key Changes, Impact on Banks

The Banking Laws (Amendment) Act, 2025, notified in two phases on 1 August 2025 and 1 November 2025, has ushered in long-awaited reforms to modernise India’s banking regulatory framework. These changes focus on stronger corporate governance, enhanced depositor protection, simplified compliance, and better alignment with the Companies Act and constitutional amendments.

Here are the most important updates that every banker, depositor, and business owner should know.

Up to 4 Nominees Allowed: Smoother Succession for Deposits & Lockers

Gone are the days of rigid single-nominee rules. The amended law now permits depositors to appoint up to four nominees with two options:

• Simultaneous nomination (all nominees get equal share)
• Successive nomination (first nominee → second → third → fourth)

This change drastically reduces disputes and delays in claim settlement after the account holder’s demise — a major relief for families and senior citizens.

‘Substantial Interest’ Threshold Raised from ₹5 Lakh to ₹2 Crore

The decades-old limit of ₹5 lakh for defining “substantial interest” (which triggers stricter governance scrutiny for directors) has finally been updated to ₹2 crore. This realistic revision:

• Reduces unnecessary disclosures
• Strengthens genuine conflict-of-interest checks
• Brings the law in line with today’s economic realities

Longer Tenure for Co-operative Bank Directors: 8 → 10 Years

In a big boost to governance stability in co-operative banks, the maximum consecutive tenure for directors (excluding chairperson and whole-time directors) has been increased from 8 years to 10 years. This aligns with the 97th Constitutional Amendment and is expected to:

• Improve leadership continuity
• Attract better talent to co-operative bank boards
• Enhance credit delivery, especially to rural and semi-urban areas

Public Sector Banks Get More Autonomy

Public sector banks (PSBs) have been empowered with two significant rights previously reserved for private companies:

• Fixing remuneration of statutory auditors on their own
• Directly transferring unclaimed dividends and shares to the Investor Education and Protection Fund (IEPF)

These steps bring PSBs at par with Companies Act provisions and improve audit independence and investor protection.

Harmonised & Simplified RBI Reporting Timelines

The amendments streamline submission deadlines for various RBI returns, reducing compliance overlap and penalties. Banks, especially those serving MSMEs, will benefit from lower operational burden and clearer guidelines.

Impact on MSMEs: Lower Costs, Better Credit Access

• Reduced compliance load for banks → lower lending costs passed on to MSME borrowers
• Stronger co-operative banks → improved credit flow to small businesses and rural entrepreneurs
• Easier nomination rules → greater confidence among MSME owners who park working capital in banks

Summary Table: Key Changes at a Glance

Final Takeaway

The Banking Laws (Amendment) Act, 2025 is a forward-looking reform package that modernises outdated provisions, strengthens governance (especially in co-operative banks), protects depositors, and reduces unnecessary regulatory friction.

Whether you are a depositor wanting peace of mind, a co-operative bank director, a public sector bank official, or an MSME owner, these changes will make banking safer, simpler, and more efficient.

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