In a move aimed at bolstering transparency and investor protection in the financial sector, the Finance Ministry is contemplating significant amendments to the Banking Companies (Undertakings, Acquisitions and Transfers) Act, 1970. This act currently governs the operations of public sector banks in India. The proposed amendments focus on facilitating the transfer of unclaimed shares to the Investor Education Protection Fund (IEPF) for better management and utilization of dormant assets.

Here’s a breakdown of the key points surrounding this development

Public sector banks in India operate under the ambit of the Banking Companies Act, 1970. However, the Act lacks provisions for the transfer of unclaimed shares to the IEPF, unlike unclaimed dividends, which can already be transferred under Section 10B of the Act. .

Proposed Amendments: The proposed amendments seek to address this gap by allowing public sector banks to transfer unclaimed shares to the IEPF after a period of seven years, similar to the provision for unclaimed dividends. This move aligns the Banking Companies Act with the Companies Act, 2013, which already mandates such transfers for private companies.

Objective: The primary objective of these amendments is to enhance regulatory coherence and investor confidence in the banking system. By mandating the transfer of unclaimed dividends and shares, the government aims to promote transparency, accountability, and efficient utilization of dormant assets.

Rationale: Experts view these proposed amendments as a crucial step towards removing regulatory loopholes and ensuring consistency across laws governing financial institutions. Mukesh Chand, a senior lawyer specializing in economic law, emphasizes that such amendments will not only enhance transparency but also bolster investor trust in the banking sector.

Impact on Investors: The proposed amendments are expected to streamline the process for investors to claim their dormant assets held by public sector banks. Investors will have the opportunity to reclaim unclaimed dividends and shares by submitting the requisite documents to the IEPF, thereby safeguarding their interests and fostering greater financial literacy.

Government’s Focus on Ease of Doing Business: Sanjay Aggarwal, a senior director at CARE Ratings, highlights that these regulatory measures align with the government’s broader agenda of improving the ease of doing business in India. By harmonizing rules and regulations across different laws, the government aims to reduce compliance burdens and create a more conducive environment for investment and economic growth.

The proposed amendments to the Banking Companies Act signify a concerted effort by the government to enhance transparency, accountability, and investor protection in the financial sector. By bridging regulatory gaps and aligning with global best practices, these amendments are poised to strengthen India’s banking system and bolster investor confidence in the years to come.