The Ministry of Finance has introduced sweeping amendments to the Banking Regulation (Co-operative Societies) Rules, 1966, establishing—for the first time—a clearly codified procedure for identifying and removing directors who do not meet the professional eligibility standards mandated under the Banking Regulation Act, 1949.
The new notification, titled the Banking Regulation (Co-operative Societies) Amendment Rules, 2025, applies across India’s urban co-operative banks, state co-operative banks and district central co-operative banks—institutions that collectively serve millions of depositors but have long faced scrutiny over governance deficits.
At the heart of the change lies a new definition: the ineligible director. Any board member who fails to meet the experience and domain knowledge criteria under Section 10-A(2)(a) and 10-A(2)(b) of the Banking Regulation Act will now fall within this category. These sections require that at least 51 percent of the board comprise individuals with expertise in fields such as banking, economics, accountancy, agriculture and rural economy, co-operation, finance, law, or small-scale industry. The Reserve Bank of India (RBI) may expand this list when necessary.
A Formal Mechanism for Removal—Ending Long-Standing Ambiguity
While co-operative banks have historically struggled with mismatched skill sets on their boards, the absence of an explicit removal mechanism often left regulatory directions only partially implemented. The newly inserted Rule 5-A seeks to correct that.
Under the revised rules, both the bank’s Board of Directors and the RBI will first determine how many directors must vacate office. The final selection of individuals who must step down, however, will not be discretionary—but will instead be decided by drawing lots.
The Gazette notification outlines an unusually detailed process for conducting the draw:
Ineligible directors will be divided into groups by the length of their tenure.
If two groups emerge, the one with the shorter tenure is removed from the process.
If more than two groups exist, the group with the shortest tenure is excluded.
The exclusion rule will not apply if it results in fewer names than required for removal.
After shortlisting, the final draw will be carried out by the Board or by an RBI officer, depending on which subsection of the Act is invoked.
Co-operative banks will be permitted to send a representative to witness draws conducted by the RBI—an attempt to inject transparency into what may otherwise be a politically sensitive exercise.
Technical Revisions: From Reporting Formats to Reserve Requirements
Beyond the headline governance reforms, the amendment includes several technical changes that update long-standing reporting formats to modern banking norms:
References to “alternate Fridays” are replaced with “the 15th day” and “the last day” of each month.
Mentions of “subsidiary banks” are removed.
IDBI Bank Ltd. is newly inserted at relevant points.
Clauses concerning reserve computations are realigned with RBI-notified percentages as of the last day of the second preceding fortnight.
Deposits under the Standing Deposit Facility Scheme are now formally recognised in reporting statements.
The amendments were notified by Joint Secretary Shalini Pandit. The Gazette also catalogues earlier modifications to the 1966 Rules, stretching back nearly six decades—highlighting the evolving architecture of India’s co-operative banking regulation.
Implications for India’s Co-operative Banking Future
Regulators have long argued that professionalising boards is essential to safeguarding co-operative banks from mismanagement, political interference and recurring financial instability. The new removal framework is poised to shift how these banks function internally—forcing boards to align with skill-based standards that are already mandatory for commercial banks.
By introducing a transparent, rule-bound system for identifying and removing ineligible directors, the government appears intent on tightening governance at a time when co-operative banks continue to play an outsized role in rural credit, state-run schemes and financial inclusion.
How smoothly these rules will be implemented—particularly in politically influenced district and state co-operative banks—may determine their ultimate impact.
