By Vidyadhar Anaskar
The Central Government’s recent amendment to the Banking Regulation Act, fixing the maximum tenure of directors in Urban Cooperative Banks at 10 consecutive years, has created fresh confusion in the sector.
On 29th July 2025, the government issued a circular announcing that the new provision would take effect from 1st August 2025. While many in the cooperative sector welcomed the clarity, believing the long-standing ambiguity was resolved, others interpreted the move differently, arguing that existing directors would now get an extended opportunity to continue.
The Core Issue
The amendment clearly restricts any director from holding office for more than 10 consecutive years. But questions remain on how and from when the period should be calculated:
Should the 10 years be counted retrospectively or only from 1st August 2025?
What happens to those who had already completed 10 years before the new rule came into effect?
Will such directors now face permanent disqualification?
Instead of ending the debate, the circular has sparked fresh uncertainty.
Legal Background
Generally, amendments come into force in one of three ways:
If the Gazette notification specifies a date, that date applies.
If no date is specified, the Presidential assent date is treated as effective.
Sometimes, even after assent, the government notifies a later date for implementation.
The present case falls under the third category. Thus, from 1st August 2025, any director who has already completed 10 consecutive years may be deemed ineligible for future elections.
Loopholes and Ambiguities
The law specifies “10 consecutive years.” This opens potential loopholes:
A director could resign after 9 years and return after a gap, thereby bypassing the intent of the law.
On the other hand, someone who has already completed 10 years may now be permanently barred, even after a 5-year break-something the law may not have intended.
Questions also persist about whether the tenure of Chairpersons and full-time directors should be included in the 10-year cap.
Maharashtra’s Earlier Experience
Maharashtra’s cooperative law faced similar issues decades ago.
In 1969, directors were barred from holding posts of Chairperson or Vice-Chairperson for more than 6 years, later extended to 10 years in 1983.
To prevent misuse, in 1986 the law was amended to count aggregate service (including broken terms), closing the loophole.
Finally, in 2007, the restriction itself was removed.
The state had been clear in its intent-to prevent power concentration and allow young leadership. Many experts now argue the Centre should have drawn from these lessons.
Clash Between Central and State Laws
Elections to urban cooperative banks are conducted under state cooperative laws by state election authorities. These laws have their own disqualification criteria and procedures.
Here lies the conflict:
Can a state authority disqualify a candidate only on the basis of the Banking Regulation Act?
Will state governments need to amend their cooperative laws?
Or will courts have to settle the matter, since the Banking Regulation Act (a special law) overrides state cooperative laws (a general law)?
Notably, when the director tenure was capped at 8 years in 2020, state election bodies did not apply it strictly.
Link to 97th Constitutional Amendment
The 97th Amendment fixed cooperative board terms at 5 years. The Banking Regulation Act had earlier capped directors’ tenure at 8 years, now extended to 10 years, aligning with two 5-year terms.
But the use of “consecutive 10 years” again leaves scope for manipulation, directors could resign before completing their term and return soon after, thereby staying in power indefinitely.
The Bigger Question
If states ignore this amendment while holding elections, what action will the Reserve Bank of India take?
If RBI imposes penalties, affected banks could approach courts, leading to prolonged legal battles.
Effective implementation will likely require states to align their cooperative laws with the central legislation.
Conclusion
The government’s intent is clear-to bring transparency and limit the monopoly of a few individuals in cooperative banks. Yet, the ambiguous drafting of the 10-year rule has led to multiple interpretations. Unless states amend their laws or judicial clarity emerges, the cooperative banking sector may remain trapped in uncertainty.
Meanwhile, in the recently concluded Monsoon Session of Parliament, Union Finance Minister Nirmala Sitharaman shared details of directors in Gujarat’s cooperative banks who have already completed more than eight years in office. This makes it evident that the government’s intention is retrospective in nature. Therefore, with effect from 1st August 2025, any person who has completed 10 years as of that date will no longer be eligible to continue as a director, as clarified by the Finance Minister.
(The author is a well-known cooperative banking expert and the Chairman of the Administrative Board of the Maharashtra State Cooperative Bank).
