Several key provisions of the Banking Laws (Amendment) Act, 2025 will come into force from 01 Aug 2025, following a notification issued by the Ministry of Finance. The legislation, passed earlier this year and notified on April 15, introduces sweeping reforms to strengthen governance in banks, enhance audit quality in public sector banks (PSBs), align cooperative banks with constitutional norms, and safeguard the interests of depositors.

Major Reforms Under the Act

• Redefined ‘Substantial Interest’: The threshold for ‘substantial interest’ has been significantly revised—from ₹5 lakh to ₹2 crore—to reflect current economic realities. The previous limit was unchanged since 1968. Under the Banking Regulation Act, substantial interest in a company refers to holding shares of over Rs 5 lakh rupees or 10% of the paid-up capital of the company, whichever is less.  This may be held by an individual, his spouse, or minor child, either individually or collectively.  The Act amends this to increase the threshold to two crore rupees
• Director Tenure in Cooperative Banks: In alignment with the 97th Constitutional Amendment, the maximum tenure for directors in cooperative banks (excluding the chairperson and whole-time directors) has been increased from 8 years to 10 years, thereby improving governance continuity.
• Audit Standards and Remuneration in PSBs: Public sector banks will now be empowered to pay remuneration to statutory auditors, a move expected to attract and retain high-quality audit professionals. This provision is aimed at enhancing audit quality and oversight standards in government-owned banks.
• Unclaimed Assets Transfer to IEPF: PSBs will now be allowed to transfer unclaimed shares, interest, and bond redemption amounts to the Investor Education and Protection Fund (IEPF), aligning them with provisions already applicable to companies under the Companies Act.

According to the government, these changes mark a significant regulatory shift intended to bolster accountability, professional oversight, and depositor protection across the Indian banking system.

“The implementation of these provisions marks a significant step towards strengthening the legal, regulatory, and governance framework of the Indian Banking Sector,” the government said in a statement.

Further provisions of the Act may be notified in phases, as the law allows different sections to come into force on different dates.