State Bank of India has asked for clearer operational rules on the handling of bank accounts linked to foreign donations, warning that the proposed changes to India's foreign contribution law could leave banks uncertain when an organisation's registration lapses. The issue was raised before the Joint Parliamentary Committee examining the Foreign Contribution (Regulation) Amendment Bill, which seeks to alter how compliance is managed in certain cases involving foreign funding.
Banking Gap Emerges
According to people familiar with the discussion, SBI told the committee that the draft framework does not fully explain what banks should do with accounts belonging to organisations that lose registration or face a change in compliance authority. The bank's concern is not political but procedural: if an entity's registration expires or is transferred to a government-designated authority, there must be a clear, uniform banking protocol for incoming donations, account operation, and fund segregation.
That request reflects a broader challenge in India's tightly regulated foreign contribution regime. Banks are the first line of enforcement for foreign donations, and they are expected to ensure that funds are credited only to eligible accounts and used in line with law. In the absence of precise instructions, lenders risk either freezing legitimate activity or allowing transactions that later draw regulatory scrutiny.
SBI's intervention is significant because the lender is the country's largest state-owned bank and a major channel for foreign contribution accounts. Its comments suggest that even large institutions with established compliance systems want the law to define the mechanics more explicitly before it is enacted.
Compliance Transfer Questions
The amendment bill under review proposes that, in some situations, compliance responsibility may be shifted to a government-designated authority. That change is intended to strengthen oversight and reduce ambiguity when an organisation's registration status changes. But it also raises a practical question: who controls the account, and under what conditions can funds continue to be received or disbursed?
For banks, the answer matters because foreign contribution accounts are not ordinary current accounts. They are subject to layered checks on source, purpose and end use. If registration lapses, the bank must know whether to suspend credits, permit only certain transactions, or route the account through a designated official. Without that clarity, institutions could face conflicting obligations between customer service, statutory compliance and anti-money-laundering controls.
The issue is especially sensitive for non-governmental organisations that depend on foreign grants for social work, education, health care and community programmes. A sudden interruption in account access can halt projects, delay salaries and disrupt donor commitments. At the same time, regulators argue that tighter rules are necessary to prevent misuse and ensure that foreign funds are not diverted from declared purposes.
Political Fault Lines Deepen
The bill has already drawn criticism from opposition parties, which say it could disadvantage minority groups and make it harder for non-profits to receive foreign funding. Critics argue that the proposed changes may increase state control over civil society organisations and create uncertainty for legitimate charitable work.
Supporters of the bill, by contrast, contend that the amendments are meant to improve accountability and close loopholes in a system that has long faced scrutiny over compliance failures. The parliamentary review has therefore become a test of how India balances national security, financial oversight and the operational needs of the non-profit sector.
SBI's submission adds a technical but important layer to that debate. It suggests that beyond the political controversy, the legislation must also be workable at the branch level, where bank officers are expected to interpret rules in real time. If the law is to function smoothly, banks say, it must specify what happens to accounts when registration lapses, who may authorise transactions, and how foreign donations should be treated during any transition period.
The committee is expected to weigh these concerns as it finalises its recommendations. For now, the bank's message is clear: if Parliament changes the compliance architecture, it must also provide the banking instructions that make the system usable. Without that, the risk is not only regulatory confusion, but also disruption to organisations that rely on foreign contributions for lawful activity.