RBI/DOR/2025-26/286
DOR.STR.REC.205./21.04.048/2025-26
November 28, 2025
Reserve Bank of India (Urban Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 (updated as on July 01, 2026)
Table of Contents
- Chapter I - Preliminary
- Chapter II - General Instructions
- Chapter III - Asset Classification
- Chapter IV - Provisioning Norms
- Chapter V - Income Recognition
- Chapter VI - Repeal and Other Provisions
- Annex - I
Introduction
Reserve Bank of India (‘Reserve Bank’) is statutorily mandated to operate the credit system of the country to its advantage. In line with the international practices and as per the recommendations made by the Committee on the Financial System (Chairman Shri M. Narasimham), the Reserve Bank has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances portfolio of banks so as to move towards greater consistency and transparency in the published accounts.
In exercise of powers conferred by Sections 21, 35A and 56 of the Banking Regulation Act, 1949, and Section 6 of the Factoring Regulation Act, 2011, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues these Directions hereinafter specified.
Chapter I - Preliminary
A. Short title and commencement
- These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025.
- These Directions shall come into force with immediate effect.
B. Applicability
- These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as ‘banks’ and individually as a ‘bank’).
In this context, urban co-operative banks shall mean Primary Co-operative Banks as defined under section 5(ccv) read with Section 56 of Banking Regulation Act, 1949.
- A bank shall follow the requirements of the State Co-operative Societies Acts and / or rules made thereunder, or other statutory enactments, if they are more stringent than those prescribed hereby.
- A bank shall also follow the prudential guidelines on income recognition, asset classification and provisioning of advances for restructured accounts as prescribed in the Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025, in addition to these Directions.
C. Definitions
- In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them below:
(1) ‘crop season’ for each crop, shall mean the period up to harvesting of the crops raised, as determined by the State Level Bankers’ Committee (SLBC) in each State;
(2) ‘doubtful asset’ shall mean an asset which has remained in the substandard category for a period of twelve months;
(3) ‘exposure’ shall include all funded and non-funded exposures (including underwriting and similar commitments).
(4) ‘long duration crops’ shall mean crops with crop season longer than one year;
(5) ‘loss asset’ shall mean an asset where loss has been identified by the bank / the internal / external auditors / the Department of Co-operation or the inspection conducted by the Reserve Bank, but the amount has not been written off wholly by the bank;
(6) ‘non-performing asset’ shall mean an asset, including a leased asset, which has ceased to generate income for a bank;
(7) ‘out of order status’ – a cash credit / overdraft (CC / OD) account shall be treated as ‘out of order’ if any of the following conditions are satisfied:
- the outstanding balance remains continuously in excess of the sanctioned limit / drawing power for 90 days;
- the outstanding balance is less than the sanctioned limit / drawing power but there are no credits continuously for 90 days;
- the outstanding balance is less than the sanctioned limit / drawing power but credits are not enough to cover the interest debited during the previous 90 days period.
Explanation 1: ‘Previous 90 days period’ referred to in (iii) above shall be inclusive of the day for which the day-end process is being run.
Explanation 2: The definition of ‘out of order’ shall be applicable to all credit products being offered as an overdraft facility, including those not meant for business purpose and/or which entail interest repayments as the only credits.
(8) ‘overdue’ status – any amount due to a bank under any credit facility shall be treated as ‘overdue’ if it is not paid on the due date fixed by the bank.
(9) ‘security’ shall mean tangible security properly charged to the bank and will not include intangible securities like guarantees (including State government guarantees), comfort letters, etc.
(10) ‘short duration crops’ shall mean crops which are not ‘long duration’ crops;
(11) ‘substandard asset’ shall mean an asset, which has remained NPA for a period less than or equal to twelve months;
- The definitions of the terms ‘Micro Enterprises’, ‘Small Enterprises’, and ‘Medium Enterprises’ shall be in terms of the circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 on ‘Credit flow to Micro, Small and Medium Enterprises Sector’ as updated from time to time.
- The terms ‘credit event’ and ‘default’ shall have the same meaning as assigned to it in the Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025.
- The terms ‘Commercial Real Estate (CRE)’, ‘Commercial Real Estate – Residential Housing Sector (CRE - RH)’, ‘project finance’, and ‘financial closure’ shall have the same meaning assigned to them in the Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025.
- All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934, or the Companies Act, 2013, or any statutory modification or re-enactment thereto or other regulations issued by the Reserve Bank or the Glossary of Terms published by the Reserve Bank or as used in commercial parlance, as the case may be.
Chapter II - General Instructions
A. Role of the Board
- A bank shall frame a Board approved policy for the implementation of these Directions, which shall inter alia include the following principles / components:
- the policy of income recognition shall be objective and based on record of recovery rather than on any subjective considerations;
- guidelines for appointment of external agencies for valuation of collateral such as immovable property charged in favour of it;
- policy on methodology and periodicity for review / renewal of credit facilities within the overall regulatory guidelines;
- The Board of Directors of a bank shall set cut-off limits for advances to be treated as ‘larger advances’ and finalise names of external agencies for annual stock audits for the purpose of paragraph 62.
B. Prudence in Lending and Consumer Education
- A bank shall comply with the following instructions in respect of all loans sanctioned on or after December 31, 2021:
- The exact due dates for repayment of a loan, frequency of repayment, breakup between principal and interest, examples of dates of classification as special mention account (SMA) / non-performing asset (NPA), etc. shall be clearly specified in the loan agreement.
- The borrower shall be apprised of the same at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms/loan agreement till full repayment of the loan.
- In cases of loan facilities with moratorium on payment of principal and/or interest, the exact date of commencement of repayment shall also be specified in the loan agreements.
- In case of loans sanctioned before December 31, 2021, compliance to the instructions in paragraph 13 shall be ensured as and when such loans become due for renewal/review.
- A bank shall apply the following principles in respect of working capital accounts sanctioned by them:
- Drawings in the working capital accounts are covered by the adequacy of current assets;
- Drawing power shall be arrived at based on the stock statement which is current;
- Notwithstanding sub-paragraph (2), considering the difficulties of large borrowers, stock statements relied upon by a bank for determining drawing power should not be older than three months;
- The outstanding in the account based on drawing power calculated from stock statements older than three months, shall be deemed as irregular.
- In case of constraints such as non-availability of financial statements and other data from the borrowers, the bank shall furnish evidence to show that renewal/ review of credit limits is already on and would be completed soon.
- A bank shall strictly adhere to the Board approved policy on methodology and periodicity for review / renewal of credit facilities within the overall regulatory guidelines.
- A bank shall avoid frequent and repeated ad-hoc / short review / renewal of credit facilities without justifiable reasons.
- A bank shall capture all the data relating to regular as well as ad-hoc / short review / renewal of credit facilities in its core banking systems / management information systems and make the same available for scrutiny as and when required by any audit or inspection by Auditors / the Reserve Bank. Further, the processes governing review / renewal of credit facilities shall be brought under the scope of concurrent / internal audit / internal control mechanism of the bank.
- A bank shall implement the following instructions for increasing awareness among the borrowers:
- place consumer education literature on its websites, explaining with examples, the concepts of date of overdue, special mention account and non-performing asset classification and upgradation, with specific reference to day-end process;
- consider displaying such consumer education literature in its branches by means of posters and / or other appropriate media;
- ensure that front-line officers educate borrowers about all these concepts, with respect to loans availed by them, at the time of sanction / disbursal / renewal of loans.
