Parliament Passes Banking Laws Bill
Why focus: Parliamentary Act with numbered provisions — GS3 Economy, perfect for How-Many-Correct MCQs testing RBI Act and Banking Regulation amendments
In News
What Happened
Why It Matters
Background
History & Context
What Changed
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Number of Nominees: BEFORE, Sections 45ZA, 45ZC, and 45ZE of the Banking Regulation (BR) Act allowed only one nominee. NOW, depositors can appoint up to four nominees (simultaneously or successively) for deposits, safe custody articles, and lockers.
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Substantial Interest Threshold: BEFORE, Section 5 of the BR Act defined it as holding shares over Rs. 5 lakh or 10 percent of paid-up capital. NOW, the monetary threshold is raised to Rs. 2 crore.
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Definition of Fortnight: BEFORE, a fortnight for maintaining the Cash Reserve Ratio (CRR) was defined as Saturday to the second following Friday. NOW, Section 42 of the RBI Act and Section 18 of the BR Act redefine it as the 1st to 15th day, or 16th to the last day of the calendar month.
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Tenure of Cooperative Bank Directors: BEFORE, directors (excluding chairpersons or whole-time directors) could serve a maximum of 8 consecutive years. NOW, Section 10A of the BR Act extends this to 10 years, aligning with the 97th Constitutional Amendment.
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Auditor Remuneration in PSBs: BEFORE, the RBI fixed statutory auditors' remuneration in consultation with the Central Government. NOW, Public Sector Banks have the discretion to decide the remuneration themselves.
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Unclaimed Assets: BEFORE, unclaimed dividends and shares stayed with the banks. NOW, dividends, shares, and bonds unpaid for seven consecutive years will be transferred to the Investor Education and Protection Fund (IEPF), from which individuals can claim refunds.
What Did NOT Change
Despite widespread market expectations of broader structural reforms or frameworks for the privatization of public sector banks, the bill refrained from altering the core ownership structure of these banks. Furthermore, while the monetary threshold for 'substantial interest' was raised, the percentage threshold remained unchanged at 10 percent of the paid-up capital.
Prelims Angle
NCERT Connection
Common Misconceptions
✗ The government has altered the CRR percentage requirements for all commercial banks through this bill.
✓ The amendment does not change the CRR percentage or the monetary policy itself. It only redefines the 'fortnight' period over which the average daily balance for CRR is calculated.
Students often confuse structural or administrative changes in reporting periods with actual macroeconomic policy rate adjustments by the RBI.
✗ The 'substantial interest' threshold was raised to Rs. 2 crore or 20 percent of a company's paid-up capital.
✓ The monetary threshold was raised from Rs. 5 lakh to Rs. 2 crore, but the percentage limit strictly remains at 10 percent of the paid-up capital.
When absolute numerical limits in a statute are raised dramatically (due to inflation since 1968), people often mistakenly assume that the percentage limits are proportionally adjusted as well.
Practice Questions
Q1
How Many CorrectConsider the following statements regarding the Banking Laws (Amendment) Bill, 2024: 1. It amends the Banking Regulation Act, 1949, to permit a bank account holder to appoint up to four nominees, either simultaneously or successively. 2. It redefines a 'fortnight' for the maintenance of Cash Reserve Ratio (CRR) to align strictly with the first and second halves of a calendar month. 3. It increases the percentage limit defining 'substantial interest' in a company from 10 percent to 15 percent of paid-up capital. How many of the statements given above are correct?
Q2
Match the FollowingMatch List I (Provision changed by the Banking Laws Amendment Bill) with List II (Statute Amended): List I: A. Maintenance of Cash Reserve Ratio (CRR) by scheduled banks B. Limit on the tenure of cooperative bank directors C. Transfer of unclaimed dividends to the IEPF List II: 1. Banking Regulation Act, 1949 2. Reserve Bank of India Act, 1934 3. State Bank of India Act, 1955 and Bank Nationalisation Acts
Q3
Assertion & ReasonAssertion (A): The Banking Laws (Amendment) Bill, 2024 increased the maximum tenure of directors of cooperative banks (excluding chairpersons) from 8 years to 10 years. Reason (R): The amendment was designed to align the tenure of cooperative bank directors with the Constitutional framework established by the 97th Constitutional Amendment Act.