New Delhi: The Government of India has officially notified key amendments to the Banking Laws (Amendment) Act, 2025, enabling Public Sector Banks (PSBs) to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF) starting August 1, 2025. The move aligns PSBs with provisions already applicable to companies under the Companies Act.
The notification, dated July 29, 2025, also introduces critical changes across the banking sector with an aim to enhance corporate governance, investor protection, and regulatory alignment.
Unclaimed Financial Assets Now to Be Routed to IEPF
With this amendment, PSBs are now empowered to transfer unclaimed financial instruments – such as shares, interest, and bond redemption proceeds – to the IEPF. Previously, such provisions were only applicable to companies, creating a regulatory gap that has now been bridged.
This change is designed to ensure transparency, better investor awareness, and centralized tracking of unclaimed funds.
Boost for Audit Quality: Statutory Auditors to Receive Remuneration
The amendments also authorize PSBs to offer remuneration to statutory auditors, a move expected to raise audit standards and allow banks to engage with more competent and qualified professionals. According to the Finance Ministry, this will contribute to greater financial scrutiny and compliance discipline in public sector banks.
Substantial Interest Threshold Raised to ₹2 Crore
In a significant update, the threshold for ‘substantial interest’ – a key criterion in assessing related party and conflict-of-interest transactions – has been increased from ₹5 lakh to ₹2 crore. This threshold was last updated in 1968, and the revision reflects the changing scale of the Indian financial ecosystem.
Cooperative Bank Reforms: Director Tenure Aligned with Constitutional Mandate
Further, the amendments align the tenure of directors in cooperative banks with the 97th Constitutional Amendment. The maximum tenure for directors (excluding chairpersons and whole-time directors) has now been extended from 8 years to 10 years.
This reform aims to improve governance continuity, reduce disruptions in leadership, and ensure compliance with constitutional directives.
Amendments Effective from April 1, 2025
Although the gazette notification was released this week, the amended provisions will come into effect from April 1, 2025. These changes are part of a broader initiative to modernize India’s banking laws, address gaps in existing regulations, and align them with evolving economic and financial realities.
Banking Laws (Amendment) Act, 2025: A Comprehensive Overhaul
The Banking Laws (Amendment) Act, 2025, notified on April 15, 2025, consists of 19 amendments across five key 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 of 1970 and 1980
The overarching goal of the legislation is to enhance investor confidence, strengthen institutional oversight, and modernize the legal framework of the Indian banking industry.
