The Ministry of Finance has notified major amendments to the Banking Regulation (Co-operative Societies) Rules, 1966, introducing a clear procedure for identifying ineligible directors and determining who must vacate office in co-operative banks.
The new rules, titled Banking Regulation (Co-operative Societies) Amendment Rules, 2025, will come into effect from December 15, 2025. These amendments apply to co-operative banks governed under the Banking Regulation Act, 1949- including urban, state and district central co-operative banks.
The amendments add a new definition of an “ineligible director,” referring to any director who does not meet the requirements specified under Section 10-A(2)(a) and (b) of the Banking Regulation Act.
Section 10-A(2)(a) of the Banking Regulation Act requires that at least 51% of the total members of a bank’s Board of Directors must be individuals who possess special knowledge or practical experience in specific fields. These fields include accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law and small-scale industry. The Reserve Bank may also include any other area in which, in its opinion, special knowledge or practical experience would be useful to the banking company.
The government has now formalised how such directors will be removed or asked to cease from office when the board is reconstituted, or when the Reserve Bank of India proceeds to alter the board’s composition.
A newly inserted Rule 5-A lays down a detailed mechanism for deciding which of the ineligible directors must step down. According to the notification, both the Board of Directors and the Reserve Bank will first ascertain the number of directors who need to be removed under the relevant subsections of Section 10-A. The final determination of names, however, will be carried out strictly through a drawing of lots.
The Gazette outlines a structured procedure for conducting the draw. Ineligible directors will first be grouped according to the period for which they have held office. If two groups exist, the group with the shorter tenure will be excluded. If more than two groups exist, the group representing the shortest period of office will be excluded.
This exclusion will not apply if it reduces the list below the number required to be removed. Once the eligible names for the draw are finalised, the lots will be drawn either by the Board of Directors or by an authorised RBI officer, depending on the relevant section of the Act. Co-operative banks will also be given a chance to depute a representative to witness the RBI-conducted draw.
Apart from the removal framework, the notification makes several technical changes to the formats used for statutory reporting. References to “alternate Fridays” have been replaced with the “15th day” and the “last day” of each month. Mentions of “subsidiary banks” are omitted, and IDBI Bank Ltd. is added at specific points.
Several clauses relating to the computation of reserve requirements have also been revised to align with percentages notified by the Reserve Bank as on the last day of the second preceding fortnight. An additional entry has been inserted to include deposits maintained under the Standing Deposit Facility Scheme.
The amendment rules were notified by Joint Secretary Shalini Pandit, and the Gazette also lists earlier changes to the 1966 Rules dating back to 1967.
