RBI Act Amendments

Since its enactment, the RBI Act, 1934 has undergone several amendments to adapt to changing economic conditions. These amendments have expanded the RBI’s role in areas such as monetary policy formulation, regulation of payment systems, and financial stability. Important Amendments are as follows:

Early Amendments (Pre-independence Till 1956)

Before Independence, RBI Act was amended in 1940 for early adjustments to the provisions of the act. Then some amendments around late 1940s and early 1950s were related to definitions and territorial applicability (e.g., changes due to India/Burma separation, extension to new territories).

Kindly note that RBI Act was not amended for its Nationalization. Rather a new standalone act Reserve Bank (Transfer to Public Ownership) Act, 1948 was passed which transferred all shares of the RBI from private shareholders to the Government of India and provided for compensation to existing shareholders. This act converted RBI from a shareholder-owned central bank into a fully government-owned institution.

RBI (Amendment) Act, 1956

This amendment adjusted financial and reserve provisions in the RBI Act (e.g., note issuance backing requirements and reserve conditions).

RBI (Amendment) Act, 2006 (effective 9 Jan 2007)

This amendment mainly liberalised the Cash Reserve Ratio (CRR) regime under Section 42. The most important statutory change was in Section 42(1), where the RBI was given greater flexibility in prescribing CRR — i.e., no statutory floor/ceiling was specified, allowing the RBI to fix it at any level necessary for monetary stability. This replaced the earlier statutory cap of 9% for CRR. In the same amendment, sub-section 1B was omitted (which earlier mandated payment of interest on CRR balances), meaning the RBI does not pay interest on CRR balances maintained by scheduled commercial banks. This amendment provided greater flexibility for RBI in monetary control and CRR management.

Finance Act, 2016 — Statutory Monetary Policy Committee (MPC)

The RBI Act was amended with Finance Act 2016 to insert an entire new chapter on monetary policy aimed at providing a statutory basis for inflation targeting and the MPC. It added chapter III-F (Monetary Policy) and new sections were added as follows:

• 45Z – Provisions of this Chapter to override other provisions
• 45ZA – Inflation target
• 45ZB – Constitution of Monetary Policy Committee (MPC)
• 45ZC – Eligibility & selection of members
• 45ZD – Terms & conditions of appointment of MPC members
• 45ZE – Removal of Members of MPC
• 45ZF – Vacancies, etc., not to invalidate proceedings
• 45ZG – Secretary to MPC
• 45ZH – Information for MPC members
• 45Z-I – Meetings of the MPC
• 45ZJ – Steps to be taken to implement decisions
• 45ZK – Publication of decisions
• 45ZL – Publication of proceedings
• 45ZM – Monetary Policy Report
• 45ZN – Failure to maintain inflation target
• 45ZO – Power to make rules under this chapter

These provisions established the statutory mandate, composition, functions, reporting and accountability (inflation target) associated with India’s Monetary Policy Committee.

Banking Laws (Amendment) Act, 2025

Banking Laws (Amendment) Act, 2025 modernizes banking regulations by strengthening governance, improving depositor protection (allowing up to four nominees), enhancing audit quality in Public Sector Banks (PSBs), and streamlining reporting to the RBI, including rationalizing director tenure in co-operative banks and updating substantial interest thresholds, bringing India’s banking framework closer to modern digital and global standards. It amended key laws, including the RBI Act, Banking Regulation Act, SBI Act, and Banking Companies (Acquisition and Transfer of Undertakings) Acts.  Its key provisions are as follows:

• Depositor Protection (RBI act section 10-13): Introduces modernized nomination facilities, allowing up to four nominees (simultaneous with percentage allocation or successive) for accounts and lockers, ensuring smoother succession.
• Governance:  Strengthens governance standards, ensuring uniformity in reporting to the RBI and improving audit quality in PSBs.
• Co-operative Banks:  Rationalizes the tenure of directors, increasing the maximum term (excluding Chairman/Whole-time Directors) to 10 years, aligning with the 97th Constitutional Amendment.
• Substantial Interest:  Revises the threshold for “substantial interest” from ₹5 lakh to ₹2 crore, updating a limit that hadn’t changed since 1968.
• Operational Efficiency:  Replaces vague terms like “alternate Fridays” with concrete calendar references (e.g., “last day of the fortnight”) for operational clarity.
• Audit & Unclaimed Amounts:  Empowers PSBs to fix auditor remuneration and allows transfer of unclaimed amounts (shares, interest) to the Investor Education and Protection Fund (IEPF).