Mudra Compass

The union budget for 2023-2024 is declared with the vision of empowering an economy that is knowledge-based with strong public finances and a robust financial sector. The Union Budget has proposed certain amendments to the Banking Regulation Act, the Banking Companies Act, and the Reserve Bank of India Act to improve bank governance and enhance the protection of investors.

In the budget speech, Finance Minister Nirmala Sitharaman said that reforms in the financial sector and innovative use of technology have led to financial inclusion at scale, better and faster service delivery, ease of access to credit, and participation in financial markets. 

Further, she added, Fintech services in India have been facilitated by the digital public infrastructure including Aadhar, PM Jan Dhan Yojana, Video KYC, India Stack, and UPI. 

“To reduce the cost of compliance, financial sector regulators will carry out a comprehensive review of existing regulations and consider suggestions from the public and regulated entities. It will be interesting to see the amendments that will be made to the laws to improve banking regulations. The Budget reiterated the government’s commitment to deploy technology to augment the financial sector. The focus on the deployment of DigiLocker and the development of a National Financial Information Registry will not only serve as a central repository of financial and ancillary information but also promote financial inclusion and ease of doing business” Prem Rajani, Managing Partner, Rajani Associates, said.

Experts believe that transparency and accessibility seem to be the key pillars of governance on which the budget for 2023 stood. A National Financial Information Registry (NFIR) has been envisioned to allow for the smooth flow of credit and will be governed by a revised legislative framework in consultation with the Reserve Bank of India.

To build the capacity of functionaries and professionals in the securities market, the Securities and Exchange Board of India will be empowered to develop, regulate, maintain, and enforce norms and standards for education in the National Institute of Securities Markets and recognize the award of degrees, diplomas, and certificates, the Finance Minister said in her Budget speech.

To facilitate certain strategic disinvestments, it is proposed to allow the carry forward of accumulated losses and unabsorbed depreciation allowance in the case of amalgamation of one or more banking companies with any other banking institution or a company after strategic disinvestment, if such amalgamation takes place within 5 years of strategic disinvestment.

“The boost to MSMEs with credit guarantee revamp scheme, mandating a layer of public consultation for all financial sector regulations by sectoral regulators and emphasis on a technology-driven ecosystem is aligned with the Government’s impetus to the financial sector as one the identified priority sector,” said Ketan Mukhija, Partner, Link Legal.

“To facilitate investor protection and to improve governance, certain amendments are expected to be introduced to the Banking Regulation Act, 1949, Banking Companies Act, 1970, and the Reserve Bank of India Act, 1950. NFIR will ensure an efficient mechanism of credit law and promote financial consolidation and inclusion, “says Pooja Tidke, Senior Partner at Parinam Law Associates.

Also, experts are of the view that public consultation will be brought to the sphere of financial regulation-making to facilitate optimum regulation of this sector. A comprehensive review of the existing regulations will be conducted by the concerned regulators to simplify and reduce the cost of compliance in the financial sector.

What is Banking Law (Amendment) Bill?

The Banking Laws (Amendment) Bill is a key bill aimed to bring reforms in India’s banking sector. It will facilitate the privatization of two public sector banks (PSBs) as part of an ambitious disinvestment plan. The bill is expected to lower the minimum government holding in the PSBs from 51% to 26%. The Banking Regulation (Amendment) Bill, 2020 was introduced in Lok Sabha by the Minister of Finance, Ms. Nirmala Sitharaman, on March 3, 2020. The Bill seeks to amend the Banking Regulation Act, of 1949, about cooperative banks. The Act regulates the functioning of banks and provides details on various aspects such as licensing, management, and operations of banks.

As per the intent of the bill, amendments will be made to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980, and the Banking Regulation Act, 1949. Reportedly, the government think-tank NITI Aayog has proposed the names of the Indian Overseas Bank and Central Bank of India for privatization in the latest round.

However, The Act does not apply to certain cooperative societies. These are (i) primary agricultural credit societies, (ii) cooperative land mortgage banks, and (iii) any other cooperative societies (except those specified in the Act).