Reserve Bank of India (Local Area Banks – Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026
RBI notification RBI/2026-27/53 · 29 Apr 2026
RBI notification RBI/2026-27/53 · 29 Apr 2026
Summary
Check the official recordThe Reserve Bank of India amends the directions for Local Area Banks regarding asset classification, provisioning, and income recognition. Banks must maintain an additional specific provision of five percent of outstanding debt for borrowers under a resolution plan. For repeated restructuring, banks must add five percent for each instance. Banks recognize interest income on an accrual basis for resolution plans. Accounts under repeated restructuring require cash basis recognition. Banks may write back provisions if the borrower pays 20 percent of the debt without default. For non-fund-based facilities or cash credit, banks may reverse provisions after one year if the borrower remains current. These changes take effect on July 1, 2026.
What you must do
Key dates
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RBI/2026-27/53 DOR.STR.REC.42/21-04-048/2026-27 April 29, 2026
Reserve Bank of India (Local Area Banks – Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026
Please refer to Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Amendment Directions, 2026 dated April 29, 2026.
Consequent to the aforesaid Amendment Directions, in exercise of the powers conferred by the sections 21 and 35A of the Banking Regulation Act, 1949 and all other laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified.
These Amendment Directions modify the Directions as under:
i. Paragraph 48A and 48B shall be inserted as under:
48A. If a resolution plan is implemented in adherence to the provisions of Chapter IV-A of Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Directions, 2025 dated November 28, 2025, borrower accounts which are classified as ‘Standard’ may be retained as such upon implementation. Borrower accounts which may have slipped into NPA between the date of occurrence of the calamity and implementation of the resolution plan, shall be upgraded as ‘Standard’, upon implementation of the resolution plan.
Provided that after implementation of the resolution plan, the subsequent asset classification shall be governed by the criteria laid out in these Directions.
48B. Accounts which are restructured under paragraph 31J to 31R of the Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Directions, 2025 dated November 28, 2025, where a subsequent restructuring is necessitated under the provisions of Chapter IV-A of the afore-mentioned Directions, shall continue to be classified as ‘Standard’.
ii. The following shall be inserted in Chapter IV - Provisioning Norms
B1. Additional specific provisioning in case of resolution plan implemented under Chapter IV-A of the Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Directions, 2025
68A. A bank shall make an additional specific provision of five percent of the outstanding debt in respect of borrowers, for whom a resolution plan has been implemented in terms of Chapter IV-A of the Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Directions, 2025. The additional specific provisions shall be over and above the applicable prudential provisions subject to a ceiling of hundred per cent.
68B. For accounts where repeated restructuring is necessitated in terms of Chapter IV-A of the Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Directions, 2025, a bank shall make additional specific provisioning of five per cent of the outstanding debt for each instance of restructuring made under the afore-mentioned Directions. This additional specific provisioning shall be over and above the applicable prudential provisions subject to a ceiling of hundred per cent.
68C. The additional specific provisions maintained in terms of paragraph 68A and 68B above may be written back upon the borrower paying at least 20% of the outstanding debt with the bank, without slipping into NPA post implementation of the restructuring, and without being subjected to another restructuring.
68D. If the outstanding debt post-restructuring is only in the form of non-fund-based facilities or facilities in the nature of cash credit / overdraft, the additional specific provisions made in terms of paragraph 68A and 68B above can be reversed after one year, post implementation of the restructuring, provided the borrower was not in default at any point of time during the period concerned. In case the borrower defaults during the above period, the conditions for reversal of additional specific provisions, mentioned above, shall be tested from the date of rectification of default.
iii. The following shall be inserted in part E, Chapter V – Income Recognition:
119A. Interest income recognition in respect of borrower accounts where resolution plan has been implemented in terms of Chapter IV-A of the Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Directions, 2025 dated November 28, 2025, shall be on accrual basis.
119B. For accounts specified at paragraph 48B of these Directions, interest income shall be recognized on cash basis.
(Vaibhav Chaturvedi)
Chief General Manager