Director tenure in co-op banks: Rules to apply prospectively, notification clarifies

In a major reform move, the Central Government has notified the implementation of key provisions of the Banking Laws (Amendment) Act, 2025, bringing clarity to the long-debated issue of director tenure in cooperative banks.

The government’s decision to enforce these provisions from 1st August 2025 also settles the confusion on whether the enhanced tenure of ten years would apply retrospectively or prospectively. With the notification specifying a future date, legal experts and stakeholders agree that the provision will be prospective, meaning it will apply to directors elected or re-elected after the commencement date.

According to legal experts, any director who completes ten years in office before 1st August 2025 will not be impacted by the new provision and may remain eligible for re-election. However, directors elected or re-elected on or after 1st August 2025 will be subject to the newly prescribed 10-year cap.

This clarification is expected to benefit cooperative banks across the country, many of which were caught in disputes over director eligibility and term limits. The change will help avoid legal uncertainties, enable smooth transitions, and bring uniformity in governance standards across the cooperative banking sector.

According to the official Gazette notification issued under sub-section (2) of section 1 of the Banking Laws (Amendment) Act, 2025, the provisions of Sections 3, 4, 5, 15, 16, 17, 18, 19, and 20 shall come into force with effect from 1st August 2025.

Of particular importance are Section 4 and Section 5, which amend the Banking Regulation Act, 1949, and directly impact the governance structure of cooperative banks. These provisions relate to the maximum tenure of directors and their eligibility for representation at the Reserve Bank of India (RBI) level.

Section 4 of the Amendment Act modifies Section 10A of the Banking Regulation Act, 1949. It extends the existing limit of a director’s tenure in a cooperative bank from eight years to ten years. The amendment specifically inserts the phrase, “and ten years in case of a co-operative bank”, making it clear that cooperative bank directors can now serve up to ten years in office.

Section 5 of the Banking Laws (Amendment) Act, 2025, amends Section 16 of the Banking Regulation Act, 1949. It allows a director of a central cooperative bank, if elected to the board of a state cooperative bank, to hold office in both institutions.

The amendment inserts the words: “or the director of a central co-operative bank elected to the Board of the state co-operative bank in which he is a member”, thereby expanding the category of directors exempted from the restriction on holding office in two banks.

Earlier, this exemption was limited to directors nominated by the Reserve Bank of India. With this change, it now extends to certain elected directors as well, ensuring better representation of cooperative banks before the RBI and addressing governance gaps that had long created operational challenges in the sector.