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Post: 09 Dec 2025
🏦 Banking Laws (Amendment) Act, 2025
Strengthening Trust, Governance, and Depositor Rights in India’s Banking System
📅 9 December 2025
📚 Syllabus: GS-III | Economy | Banking & Financial Reforms
🔍 Context
India’s banking sector has witnessed a series of structural reforms aimed at improving stability, transparency, and depositor confidence.
The Banking Laws (Amendment) Act, 2025 marks a significant step in modernising governance standards, strengthening depositor protection, and aligning banking operations with India’s expanding financial ecosystem.
🧩 What is the Banking Laws (Amendment) Act, 2025?
The Act introduces 19 amendments across five key legislations, namely:
• Reserve Bank of India Act, 1934
• Banking Regulation Act, 1949
• State Bank of India Act, 1955
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
🎯 Core Objective:
To enhance governance, improve depositor-centric mechanisms, modernise definitions, and strengthen audit and accountability frameworks.
⚙️ Why Was This Amendment Needed?
1️⃣ Rising Unclaimed Deposits
A large volume of deposits remains unclaimed due to lack of nominees or unclear succession procedures.
The Act addresses this gap by introducing structured and seamless nomination mechanisms.
2️⃣ Expanding Financial Inclusion
With deeper penetration of banking services, there is a need for updated legal frameworks capable of handling:
• High transaction volumes
• Digital banking expansion
• Complex financial products
3️⃣ Governance & Operational Clarity
Outdated definitions and fragmented rules often led to disputes and inefficiencies.
The Act brings uniformity and clarity across banking operations.
📌 Key Reforms Introduced
🧾 1. Modernised Nomination Framework (Sections 10–13)
Depositors can now:
• Nominate up to four persons
• Choose simultaneous nominations (percentage-wise distribution totaling 100%)
• Opt for successive nominations for lockers and articles in safe custody
➡️ This ensures smoother asset transfer and reduces legal disputes.
🏛️ 2. Redefinition of “Substantial Interest” (Section 3)
• Threshold raised from ₹5 lakh (1968 level) to ₹2 crore
• Reflects contemporary economic realities
• Strengthens governance norms and conflict-of-interest safeguards
🤝 3. Governance in Co-operative Banks
• Director tenure increased from 8 years to 10 years
• Alignment with the 97th Constitutional Amendment
• Excludes chairperson and whole-time director
➡️ Aims to balance stability with democratic functioning.
📊 4. Audit Reforms in Public Sector Banks (Sections 15–20)
• PSBs empowered to decide auditor remuneration
• Helps attract skilled professionals
• Enhances audit quality and financial oversight
💰 5. Transfer of Unclaimed Assets to IEPF
• Unclaimed shares, interest, and bond redemption amounts of PSBs can now be transferred to the
Investor Education and Protection Fund (IEPF)
• Aligns PSBs with Companies Act practices
• Improves transparency and fund utilisation
🌱 Broader Impact & National Vision
👨👩👧 Depositor-Centric Reform
Simplified succession and nomination rules protect families and reinforce trust in banks.
🔎 Improved Transparency
Uniform definitions and asset transfers reduce ambiguity and disputes.
📈 Stronger Banking Ecosystem
Better governance, professional audits, and modern frameworks enhance system-wide resilience.
🛤️ Way Forward
• Ensure effective implementation through RBI oversight
• Strengthen public awareness of nomination reforms
• Integrate digital banking platforms with the new legal framework
• Maintain balance between autonomy and accountability in cooperative banks
✨ Closing Reflection
The Banking Laws (Amendment) Act, 2025 reflects India’s shift from legacy banking practices to a future-ready, depositor-first financial architecture.
By reinforcing trust, governance, and operational efficiency, the Act strengthens the backbone of India’s growing economy.
Target IAS-2026+: Highly Expected Prelims MCQs :
📌 Prelims Practice MCQs
Topic:
MCQ 1 | TYPE 1 — How Many Statements Are Correct?
MCQ 1 | TYPE 1 — How Many Statements Are Correct?
Consider the following statements regarding the Banking Laws (Amendment) Act, 2025:
1)The Act amends five major banking-related legislations.
2)The Reserve Bank of India Act, 1934 is one of the amended laws.
3)The Act mandates compulsory government ownership in all cooperative banks.
4)The amendments aim to modernise governance and depositor protection.
How many of the above statements are correct?
A) Only one
B) Only two
C) Only three
D) All four
🌀 Didn’t get it? Click here (▸) for the Correct Answer & Explanation.
🟩 Correct Answer: C) Only three
🧠 Explanation:
1)✅ True – Five legislations are amended.
2)✅ True – RBI Act, 1934 is included.
3)❌ False – No such compulsory ownership mandate exists.
4)✅ True – Governance and depositor safety are central objectives.
MCQ 2 | TYPE 2 — Two-Statement Type
Consider the following statements:
1)The amended nomination framework allows both simultaneous and successive nominations.
2)Successive nominations apply only to savings bank accounts.
Which of the above statements is/are correct?
A) Only 1 is correct
B) Only 2 is correct
C) Both are correct
D) Neither is correct
🌀 Didn’t get it? Click here (▸) for the Correct Answer & Explanation.
🟩 Correct Answer: A) Only 1 is correct
🧠 Explanation:
1)✅ True – Both simultaneous and successive nominations are allowed.
2)❌ False – Successive nominations also apply to lockers and articles in safe custody.
MCQ 3 | TYPE 3 — Code-Based Statement Selection
Consider the following statements regarding governance reforms under the Act:
1)The threshold for “substantial interest” has been increased to ₹2 crore.
2)Director tenure in cooperative banks has been aligned with the 97th Constitutional Amendment.
3)The tenure of chairpersons in cooperative banks has also been extended to 10 years.
Which of the above statements are correct?
A) 1 and 2 only
B) 2 and 3 only
C) 1 and 3 only
D) 1, 2 and 3
🌀 Didn’t get it? Click here (▸) for the Correct Answer & Explanation.
🟩 Correct Answer: A) 1 and 2 only
🧠 Explanation:
1)✅ True – Threshold raised from ₹5 lakh to ₹2 crore.
2)✅ True – Director tenure extended to 10 years (excluding chairperson/whole-time director).
3)❌ False – Chairpersons are excluded from the tenure extension.
MCQ 4 | TYPE 4 — Direct Factual Question
Under the Banking Laws (Amendment) Act, 2025, unclaimed shares and related proceeds of Public Sector Banks will be transferred to which fund?
A) National Investment Fund
B) Consolidated Fund of India
C) Investor Education and Protection Fund
D) Deposit Insurance and Credit Guarantee Fund
🌀 Didn’t get it? Click here (▸) for the Correct Answer & Explanation.
🟩 Correct Answer: C) Investor Education and Protection Fund
🧠 Explanation:
The Act aligns PSBs with the Companies Act by allowing transfer of unclaimed assets to the IEPF.
MCQ 5 | TYPE 5 — UPSC 2025 Linkage Reasoning Format (I, II, III)
Consider the following statements:
Statement I:
The Banking Laws (Amendment) Act, 2025 strengthens depositor confidence in India’s banking system.
Statement II:
The Act introduces a modernised nomination framework and faster claim settlement mechanisms.
Which one of the following is correct?
A) Both Statement I and Statement II are correct and Statement II explains Statement I
B) Both Statement I and Statement II are correct but Statement II does not explain Statement I
C) Statement I is correct but Statement II is incorrect
D) Statement I is incorrect but Statement II is correct
🌀 Didn’t get it? Click here (▸) for the Correct Answer & Explanation.
🟩 Correct Answer: A)
🧠 Explanation:
✅ Depositor confidence improves due to smoother succession and reduced disputes.
✅ Nomination reforms directly operationalise this objective.
