RBI (Income Recognition, Asset Classification and Provisioning) Second Amendment Directions, 2026

Executive Summary

The Reserve Bank of India (RBI) has issued the Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Second Amendment Directions, 2026, dated 16 July 2026, to align the income recognition framework with the newly introduced prudential regime governing Specified Non-Financial Assets (SNFAs) under the RBI's Resolution of Stressed Assets framework. The amendment prescribes the accounting treatment for income and expenses relating to SNFAs and will come into force from 1 October 2026.

Background

The amendment is a consequential measure following the issuance of the Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Third Amendment Directions, 2026. Since banks may acquire immovable assets in satisfaction of stressed loan exposures, RBI has introduced specific income recognition norms to ensure that such assets are accounted for prudently and that unrealised income is not recognised prematurely.

Key Amendments

1. Income Recognition on Acquisition of SNFAs

A new provision, Paragraph 139C, has been inserted in Chapter V (Income Recognition) of the Directions. It provides that:

• Accrued but unrealised interest and/or charges relating to the extinguished loan exposure shall not be recognised as income upon acquisition of an SNFA.
• Where such unrealised income has already been recognised in respect of an SNFA outstanding as on 30 September 2026, banks are required to reverse the unrealised portion through the Profit and Loss Account on or before 30 September 2027.

This reinforces the principle that banks should recognise income only when it is actually realised, thereby preventing the overstatement of earnings.

2. Recognition of Income and Expenses from SNFAs

A new Paragraph 139D prescribes the accounting treatment after acquisition of an SNFA:

• Income received from an SNFA shall be recognised as "non-interest / other income" in the financial year in which it is realised.
• Expenses incurred for the upkeep or maintenance of an SNFA shall be recognised in the income statement in the financial year in which they are incurred.

This ensures consistency in financial reporting and reflects the non-lending nature of income generated from such assets.

Regulatory Significance

The amendment complements RBI's newly introduced SNFA framework by establishing a clear and conservative accounting treatment for assets acquired during the resolution of stressed exposures. It prevents recognition of unrealised interest after extinguishment of the original loan and requires banks to account for income only upon actual receipt.

The Directions are aligned with prudent accounting principles and are expected to improve the transparency and reliability of banks' financial statements.

Compliance Implications

Banks should undertake the following actions before the Directions become effective on 1 October 2026:

• Review all existing SNFAs and identify any accrued but unrealised interest already recognised.
• Reverse unrealised income relating to legacy SNFAs by 30 September 2027.
• Update accounting policies to classify income from SNFAs as non-interest / other income.
• Ensure that maintenance and upkeep costs of SNFAs are appropriately recognised as expenses.
• Modify accounting systems and internal controls to comply with the revised income recognition requirements.
• Train finance, accounting and compliance teams on the amended framework.

Overall Assessment

The Second Amendment Directions, 2026 strengthen RBI's prudential and accounting framework for stressed asset resolution by ensuring that banks adopt a realisation-based approach to income recognition for Specified Non-Financial Assets. The amendments reinforce conservative accounting practices, enhance transparency in financial reporting and prevent premature recognition of income arising from extinguished loan exposures.

Read together with the Resolution of Stressed Assets Third Amendment Directions, 2026, these amendments create a comprehensive regulatory framework governing the acquisition, valuation, reporting and accounting treatment of SNFAs, thereby promoting sound financial discipline and improved governance in the banking sector.