Banking Laws (Amendment) Bill 2024: What’s Changing? Explained | Economy

Summary

The video discusses the recent amendments to banking laws in India, which were passed by the Lok Sabha in the winter session. Key changes include allowing account holders to nominate up to four individuals, rather than just one, to receive the account balance in case of the account holder’s death. Additionally, significant amendments were made to regulations governing banking practices, including adjustments in statutory reporting deadlines, the definition of substantial interest in banks, and the role of co-operative banks. The video also touches upon improvements in India’s banking sector and emphasizes the government’s focus on providing more convenience and accessibility for consumers and enhancing governance within banks.

Takeaways

• 😀 The new Banking Law amendment allows account holders to appoint up to four nominees in case of their death, ensuring more flexibility for families in managing assets.
• 😀 This change is especially relevant in scenarios like the COVID-19 pandemic, where multiple family members could pass away simultaneously.
• 😀 The amendment also includes 19 changes across five key laws, including the RBI Act (1934), Banking Regulation Act (1949), and others, impacting the banking and financial sectors.
• 😀 The amendment was introduced by Finance Minister Nirmala Sitharaman as part of the 2024 budget and passed in the Winter Session of Parliament.
• 😀 Changes aim to improve governance in the banking sector and offer more convenience for consumers, with stricter deadlines for statutory filings.
• 😀 The introduction of the ability to appoint four nominees in accounts includes two options: 'successive' where the order of nomination matters, and 'simultaneous' where nominees share assets equally.
• 😀 'Substantial interest' in a bank has now been redefined: A person needs to own shares worth over ₹2 crores in a bank to be considered to have substantial interest, up from ₹1 lakh set in 1968.
• 😀 Cooperative banks have seen changes as well, such as increasing the term for directors from 8 to 10 years and allowing them to serve on state boards.
• 😀 A major revision was made to the calculation of the Cash Reserve Ratio (CRR), now calculated on a monthly basis rather than fortnightly, simplifying the process for banks.
• 😀 Household savings behavior has shifted, with less money being kept in bank deposits (40%) compared to previous years, as more people invest in mutual funds and the stock market.
• 😀 The Indian banking sector has become more stable and independent, with banks now raising capital on their own without relying on government support, reflecting improvements since 2014.

Q & A

What is the main change introduced in the banking laws passed by the Lok Sabha?

The main change is that account holders can now appoint up to four nominees for their bank accounts, ensuring that if the account holder or any nominee passes away, the funds are more easily distributed among the remaining nominees.

How does the nomination system work under the new amendment?

Account holders can choose up to four nominees. They can opt for either 'successive' nomination, where the funds pass in a set order, or 'simultaneous' nomination, where all nominees receive a specified percentage of the funds.

What issue prompted the change in the nomination rules?

The change was prompted by situations like the COVID pandemic, where multiple family members, including the account holder and the nominated individual, could pass away. This made it difficult for families to access the funds.

What is meant by 'substantial interest' in a bank or company, and how has it changed?

'Substantial interest' refers to the level of ownership or control in a bank or company. The threshold for this was increased from ₹1 lakh to ₹5 crore, meaning individuals with stakes above ₹2 crore now have substantial interest in a bank.

How does the change in the 'substantial interest' definition impact the banking sector?

The new threshold ensures that the definition of substantial interest reflects current economic conditions. The ₹1 lakh threshold, set in 1968, was outdated, and the updated ₹5 crore threshold better reflects the influence an individual or entity can have on a bank's governance.

What changes were made regarding cooperative banks and their directors?

For cooperative banks, the term length for directors was extended from 8 years to 10 years. Additionally, directors of central cooperative banks can now serve on the board of state cooperative banks as well.

What is the significance of the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) in banking?

The CRR and SLR are regulatory measures that require banks to hold a certain percentage of their deposits in reserves, either with the RBI (for CRR) or in liquid assets (for SLR), to maintain liquidity and stability in the banking system.

What recent changes were made to the calculation of reserves for banks?

The definition of a fortnight has been simplified. Instead of calculating reserves over a 14-day period, now it is based on a calendar month with two periods: the 1st to 15th and the 16th to the end of the month.

What shift has occurred in household savings behavior in India?

There has been a shift from traditional bank deposits to more diversified investments. A decade ago, 55% of household savings went into bank deposits, but now only 40% does, with more people investing in mutual funds and stock markets.

How does the new banking law reflect improvements in India's banking sector?

The law reflects a strengthened banking sector with improved governance, stability, and consumer convenience. It also highlights the sector's ability to maintain its stability even when other countries face banking crises.