Small Finance Banks – Resolution of Stressed Assets Directions

RBI/DOR/2025-26/196 DOR.STR.REC.115/21.04.048/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025 (Updated as on July 01, 2026)

Table of Contents Chapter I - Preliminary A. Short title and commencement B. Applicability C. Definitions Chapter II - General Requirements A. Board approved policies: B. Early identification and reporting of stress C. Disclosures D. Supervisory Review Chapter III - Resolution Process A. Review Period B. Inter-Creditor Agreement C. Resolution Plan Chapter IV - Additional Provisioning A. Delayed Implementation of Resolution Plan – Additional Provisioning Chapter V - Prudential Norms Applicable to Restructuring A. Applicability B. Asset Classification Post Restructuring C. Additional Finance D. Asset classification upgrade after satisfactory performance E. Default by a borrower after monitoring period F. Provisioning post Restructuring G. Income Recognition H. Change in Ownership Chapter VI - Special Cases of Restructuring A. Sale and Leaseback Transactions B. Refinancing of Exposures C. Borrowers who have committed Frauds / Malfeasance / Wilful Default D. Compromise Settlements and Technical Write-offs E. [***] F. Projects Under Implementation Chapter VI-A – Resolution of Accounts Impacted by Calamities A. Role of State Level Bankers’ Committee (SLBC) / Union Territory Level Bankers' Committee (UTLBC) / District Consultative Committee (DCC) B. Implementation of Resolution Plan by the banks C. Ancillary Measures D. Reporting Requirements Chapter VII - Government Debt Relief Schemes (DRS) A. Prudential treatment in respect of Government Debt Relief Schemes (DRS): Chapter VIII: Prudential Treatment of Instruments Acquired as part of Restructuring A. Asset classification of instruments acquired as part of restructuring B. Provisioning in respect of instruments acquired as part of restructuring C. Valuation of instruments acquired as part of restructuring D. Income Recognition from instruments acquired as part of restructuring Chapter IX - Regulatory Exemptions A. Exemptions from RBI Regulations B. Exemptions from Regulations of Securities and Exchange Board of India (SEBI) Chapter X - Special Measures A. Trade Relief Measures Chapter XI - Repeal and Other Provisions A. Repeal and saving B. Application of other laws not barred C. Interpretations Annex

Introduction

These Directions are issued with a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets. As compromise settlements are a valid resolution plan, these Directions also rationalise and harmonise the instructions on compromise settlements and technical write-offs, in order to provide impetus to resolution of stressed assets in the system. Further, these Directions lay down the consolidated regulatory treatment upon change in the Date of Commencement of Commercial Operations of projects in infrastructure and non-infrastructure (including commercial real estate & commercial real estate- residential housing).

Some of the banks may also be involved in implementation of various forms of Debt Relief Schemes (DRS) announced by State Governments that inter alia entail sacrifice / waiver of debt obligations of a targeted segment of borrowers, against fiscal support. If such schemes are announced frequently, incommensurately, or without due consideration to the principles of financial discipline, they would negatively affect credit discipline and in the long run, may be counter-productive to the credit flow to such borrowers. Apart from the broader implications for the credit discipline and moral hazard issues, DRS also raises certain prudential concerns, which include delay in receipt of dues; mismatch between the claims admitted / submitted by the banks and accepted by the concerned Government as per the terms of the scheme; mandatory requirement of fresh credit by the banks, etc. These Directions also lay down certain broad principles regarding participation of banks in DRS and specifies a model operating procedure, which has been shared with the State Governments for their consideration while designing and implementing such DRS to avoid any non-alignment of expectations of the stakeholders involved, including the Government, lenders, borrowers, etc.

Accordingly, in exercise of the powers conferred by the Sections 21 and 35A of the Banking Regulation Act, 1949, the Reserve Bank, being satisfied that it is necessary and expedient in public interest so to do, hereby, issues these Directions hereinafter specified.

These Directions are issued without prejudice to issuance of specific directions, from time to time, by the Reserve Bank to banks, in terms of the provisions of Section 35AA of the Banking Regulation Act, 1949, for initiation of insolvency proceedings against specific borrowers under the Insolvency and Bankruptcy Code, 2016 (IBC).

Chapter I - Preliminary

A. Short title and commencement

1. These Directions shall be called the Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025.

2. These Directions shall come into force with immediate effect unless specified otherwise.

B. Applicability

3. These Directions shall be applicable to Small Finance Banks (hereinafter collectively referred to as ‘banks’ and individually as a ‘bank’).

4. The instructions contained in Chapter III and Chapter IV shall not be applicable to revival and rehabilitation of MSMEs covered by the instructions contained in Circular No. FIDD.MSME & NFS.BC.No.21/06.02.31/2015-16 dated March 17, 2016, as amended from time to time.

5. These Directions shall not be applicable for borrower entities in respect of which specific directions have already been issued or are issued by the Reserve Bank to the banks for initiation of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. A bank shall pursue such cases as per the specific instructions issued to them.

C. Definitions

6. In these Directions, the following definitions shall apply, unless the context otherwise requires:

(1) ‘aggregate exposure’ shall include all fund based and non-fund based exposure, including investment exposure;

(2) ‘compromise settlement’ shall refer to any negotiated arrangement with the borrower to fully settle the claims of a bank against the borrower in cash.

Explanation: Compromise settlement may entail some sacrifice of the amount due from the borrower on the part of the bank with corresponding waiver of claims of the bank against the borrower to that extent.

(3) ‘credit event’ in the context of projects under implementation shall be deemed to have been triggered on the occurrence of any of the following:

• default with any lender;
• one or more lenders determine a need for extension of the original / extended Date of Commencement of Commercial Operations (DCCO), as the case may be, of a project;
• expiry of original / extended DCCO, as the case may be;
• one or more lenders determine a need for infusion of additional debt;
• the project is faced with financial difficulty determined as per paragraphs 9 to 11;

(3A) ‘date of invocation’ for the purpose of Chapter VI-A of these Directions shall mean the date on which the borrower and the bank agree to proceed with a resolution plan through a documented arrangement, other than in case of deemed invocation as specified in paragraph 124N of these Directions.

(4) ‘default’ shall mean non-payment of debt (as defined under the Insolvency and Bankruptcy Code, 2016) when whole or any part or instalment of the debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be.

Provided that for revolving facilities like cash credit, default would also mean, without prejudice to the above, the outstanding balance remaining continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than thirty days.

(5) ‘interest during construction’ shall mean the interest accrued on debt provided by a bank and capitalised during the construction phase of the project;