Govt. Amends Banking Regulation Rules | Introduces Rule 5-A

Notification No. G.S.R. 891(E)., Dated 10.12.2025

1. Overview

The Central Government has notified amendments to the Banking Regulation (Co-operative Societies) Rules, 1966, introducing new definitions, procedures, and revised forms to strengthen governance and streamline the removal and cessation process for directors in co-operative banks.

2. Insertion of Definition – “Ineligible Director”

A new definition of “ineligible director” has been inserted into the Rules.

2.1 Purpose of the Definition

• Establishes a clear statutory basis for identifying directors who no longer meet eligibility criteria.
• Prevents individuals who fail to satisfy prescribed fit-and-proper norms from continuing in office.
• Supports enhanced governance, transparency, and accountability within co-operative banking institutions.

The definition will be central to determining which directors are liable for removal or cessation under the revised rules.

3. New Rule 5-A – Procedure for Determination and Drawing of Lots

A new Rule 5-A has been added to lay down detailed procedures for identifying directors who shall cease to hold office or be removed, particularly in situations where:

• The board needs to be reconstituted,
• Excess directors must demit office, or
• Rotation or tenure-based removal is required.

3.1 Key Features of Rule 5-A

1. Grouping of Directors by Tenure

Directors must be grouped based on:

• Length of time in office,
• Eligibility status, and
• Categories specified in the amended rules.

This ensures the removal process is objective and tenure-balanced.

2. Drawing of Lots

If directors need to be removed or rotated out:

• The process shall be conducted by drawing of lots, ensuring fairness and non-discrimination.
• The rules lay out procedural safeguards for conducting the lot-drawing process.

3. Rules for Exclusion

Certain directors may be excluded from the lot, such as:

• Those already identified as ineligible directors,
• Those protected under statutory or regulatory tenure provisions,
• Directors completing defined mandatory terms.

These exclusions maintain compliance integrity and continuity of governance.

4. Amendments to Forms I and IX

The notification also introduces multiple amendments to Form I and Form IX, which relate to:

• Reporting of office-bearer and director details,
• Compliance declarations,
• Eligibility and cessation records.

4.1 Purpose of Amendments

• Align documentation with the new definition of “ineligible director”
• Support proper recording of removal/rotation proceedings
• Enhance auditability and transparency in director appointments and cessation

5. Regulatory Intent

The amendments aim to:

• Improve governance standards in co-operative banks
• Ensure transparent, rule-based removal of directors
• Prevent conflicts of interest or arbitrary selection
• Strengthen prudential oversight and protect depositor interests
• Modernise documentation and procedural compliance

These reforms align co-operative bank governance with contemporary regulatory expectations under the Banking Regulation Act, 1949 (as amended).

6. Implications for Co-operative Banks

Banks must:

• Update internal bylaws and governance policies to reflect the new rules
• Establish systems to determine eligibility and identify “ineligible directors”
• Set up procedures for grouping directors by tenure and conducting lots under Rule 5-A
• Revise internal formats to align with amended Forms I and IX
• Train board secretariat and compliance officers on the updated procedures

Non-compliance could lead to regulatory scrutiny, governance findings, or supervisory directives.

Click Here To Read The Full Notification