COURTKUTCHEHRY SPECIAL REPORT
Banking Laws (Amendment) Act 2025: What Customers Must Know About New Nomination, Governance, and Transparency Rules
Depositors Can Now Appoint Four Nominees, Ensuring Faster Succession and Reduced Family Disputes
Public Sector Banks Gain Autonomy, Co-operative Banks Get Stability, and Customers Benefit from Safer Systems
By Our Legal Correspondent
New Delhi: December 10, 2025:
The Banking Laws (Amendment) Act, 2025, notified in two phases (August and November 2025), marks one of the most significant overhauls of India’s banking framework in decades. The reforms modernize outdated provisions, strengthen depositor protection, and align governance with constitutional and corporate law standards. For customers, the changes mean greater convenience, faster claim settlements, and improved transparency in how banks operate.
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Key Changes That Directly Impact Customers
1. Up to Four Nominees for Deposits and Lockers
- Earlier, customers could nominate only one person for bank accounts or lockers.
- Now, depositors can appoint up to four nominees, either:
- Simultaneous nomination: All nominees share equally.
- Successive nomination: A clear order of succession (first → second → third → fourth).
- Impact: Families will face fewer disputes and claim settlements will be faster. This is especially important for senior citizens and NRIs who want smoother asset transfer.
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2. Transfer of Unclaimed Funds to IEPF
- Public Sector Banks (PSBs) can now directly transfer unclaimed dividends, shares, and bond redemption amounts to the Investor Education and Protection Fund (IEPF).
- Impact: Customers or heirs can claim forgotten money through a transparent, centralized system, reducing the risk of funds lying idle.
3. Simplified RBI Reporting Timelines
- Old reporting schedules (like “alternate Fridays”) caused confusion.
- Now, banks must report on the 15th and last day of each month, aligning with accounting cycles.
- Impact: Customers benefit indirectly as banks reduce compliance costs, making credit cheaper, especially for MSMEs.
4. Redefining ‘Substantial Interest’
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- The threshold for defining “substantial interest” in a bank has been raised from ₹5 lakh to ₹2 crore.
- Impact for Customers: This ensures only those with significant stakes face governance scrutiny, reducing unnecessary disclosures and improving trust in bank boards.
5. Longer Tenure for Co-operative Bank Directors
- Directors in co-operative banks can now serve 10 years instead of 8.
- Impact: Greater leadership stability means better credit delivery in rural and semi-urban areas, benefiting small depositors and farmers.
6. Public Sector Banks Gain Autonomy
- PSBs can now:
- Fix remuneration of statutory auditors independently.
- Transfer unclaimed funds directly to IEPF.
- Impact: Stronger audits and transparency improve depositor confidence in PSBs.
Why Customers Should Care
- Faster Claim Settlement: Multiple nominees reduce delays in accessing funds after a depositor’s death.
- Safer Deposits: Unclaimed money is now easier to recover.
- Lower Costs: Simplified compliance reduces operational burden, lowering lending rates for customers.
- Better Governance: Stronger boards and audits mean safer banking.
- Rural Benefits: Co-operative banks with stable leadership can extend more reliable credit to farmers and small businesses.
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Broader Context
The Act amends five cornerstone legislations:
- Reserve Bank of India Act, 1934
- Banking Regulation Act, 1949
- State Bank of India Act, 1955
- Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 & 1980
By modernizing these, India’s banking system is better aligned with digital banking needs, global governance standards, and depositor protection frameworks.
Expert Reactions
- Legal Analysts: Call the Act a “transformative step” that balances depositor rights with governance reforms.
- Bankers: Welcome autonomy in auditor appointments, saying it will improve audit quality.
- Customers: Express relief at nomination flexibility, which reduces family disputes.
- MSMEs: Expect easier access to credit due to reduced compliance costs.
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Conclusion
The Banking Laws (Amendment) Act, 2025 is a customer-first reform package. By allowing up to four nominees, simplifying claim settlements, transferring unclaimed funds to IEPF, and strengthening governance, the Act makes banking safer, simpler, and more transparent.
For depositors, the message is clear: your money is more secure, succession is smoother, and banks are more accountable than ever before.
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