Master Directions

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

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

1. These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025.

2. These Directions shall come into force with immediate effect.

B. Applicability

3. 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.

4. 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.

5. 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

6. 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:

1. the outstanding balance remains continuously in excess of the sanctioned limit / drawing power for 90 days;

2. the outstanding balance is less than the sanctioned limit / drawing power but there are no credits continuously for 90 days;

3. 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;

7. 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.

8. 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.

9. 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.

10. 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

11. A bank shall frame a Board approved policy for the implementation of these Directions, which shall inter alia include the following principles / components:

1. the policy of income recognition shall be objective and based on record of recovery rather than on any subjective considerations;

2. guidelines for appointment of external agencies for valuation of collateral such as immovable property charged in favour of it;

3. policy on methodology and periodicity for review / renewal of credit facilities within the overall regulatory guidelines;

12. 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

13. A bank shall comply with the following instructions in respect of all loans sanctioned on or after December 31, 2021:

1. 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.

2. 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.

3. 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.

14. 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.

15. A bank shall apply the following principles in respect of working capital accounts sanctioned by them:

1. Drawings in the working capital accounts are covered by the adequacy of current assets;

2. Drawing power shall be arrived at based on the stock statement which is current;

3. 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;

4. The outstanding in the account based on drawing power calculated from stock statements older than three months, shall be deemed as irregular.

16. 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.

17. 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.

18. A bank shall avoid frequent and repeated ad-hoc / short review / renewal of credit facilities without justifiable reasons.

19. 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.

20. A bank shall implement the following instructions for increasing awareness among the borrowers:

1. 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;

2. consider displaying such consumer education literature in its branches by means of posters and / or other appropriate media;

3. 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.

C. Disclosure Requirements

21. A bank shall make suitable disclosures in their Notes to Accounts as per the requirements contained in the Reserve Bank of India (Urban Co-operative Banks – Financial Statements: Presentation and Disclosures) Directions, 2025.

Chapter III - Asset Classification

A. General Instructions on Asset Classification

22. A bank shall classify a loan or an advance as a standard asset or a non-performing asset, as the case may be.

23. Standard asset is one which does not disclose any problems and which does not carry more than normal risk attached to the business.

24. A bank shall flag a borrower account as overdue, if so, as part of their day-end processes for the due date, irrespective of the time of running such processes.

25. Similarly, classification of borrower accounts as SMA as well as NPA shall be done as part of day-end process for the relevant date and the SMA or NPA classification date shall be the calendar date for which the day end process is run. Thus, the date of SMA/NPA shall reflect the asset classification status of an account at the day-end of that calendar date.

Illustration I: If due date of a loan account is March 31, 2021, and full dues are not received before the bank runs the day-end process for this date, the date of overdue shall be March 31, 2021. If it continues to remain overdue, then this account shall get tagged as SMA-1 upon running day-end process on April 30, 2021 i.e. upon completion of 30 days of being continuously overdue. Accordingly, the date of SMA-1 classification for that account shall be April 30, 2021.

Similarly, if the account continues to remain overdue, it shall get tagged as SMA-2 upon running day-end process on May 30, 2021 and if continues to remain overdue further, it shall get classified as NPA upon running day-end process on June 29, 2021.

26. A bank having total assets of ₹2000 crore or above as on March 31, 2020 shall have implemented system-based asset classification by June 30, 2021.

Explanation: ‘System-based asset classification’ shall mean asset classification (downgrading as well as upgrading) carried out by the Core Banking System (CBS) / computerized systems of the bank in an automated manner on an ongoing basis.

27. A bank having total assets of ₹1000 crore or above and having self-assessed themselves as being under Level III or Level IV in terms of the circular DoS.CO/CSITE/BC.4083/31.01.052/2019-20 dated December 31, 2019 on Comprehensive Cyber Security Framework for banks shall have implemented system-based asset classification by September 30, 2021.

28. A bank which meets the criteria in paragraph 27 as at the end of the financial year 2020-2021 or subsequent financial years shall implement system-based asset classification within a period of six months from the end of the financial year concerned.

29. For smooth implementation of the system-based asset classification system, a bank shall conduct pilot/parallel run and evaluate the results for accuracy/integrity of the asset classification in compliance with the applicable RBI instructions to ensure that they are ready for implementation of the system from the appointed date.

30. A bank not meeting the criteria in paragraph 27 is encouraged to voluntarily implement the system-based asset classification in its own interest.

31. A bank, which is not required to implement system-based asset classification, should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs, especially in respect of high value accounts. The bank shall fix a minimum cut-off point to decide what would constitute a high value account depending upon their respective business levels. The cut-off point should be valid for the entire accounting year.

32. Responsibility and validation levels for ensuring proper asset classification shall be fixed by the bank.

33. The system shall ensure that doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per extant guidelines.

B. Classification as non-performing asset

34. A bank shall classify a loan or an advance as non-performing asset if any of the following conditions are satisfied:

1. interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a term loan;

2. account remains 'out of order', in respect of an Overdraft / Cash Credit (OD/CC) and all other loan products being offered as an overdraft facility, including those not meant for business purposes and/or which entail interest repayments as the only credits;

3. a working capital borrowal account where irregular drawings are permitted in the account for a continuous period of 90 days;

4. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted;

5. an account where the regular / ad-hoc credit limits have not been reviewed or have not been renewed within 90 days from the due date / date of ad-hoc sanction;

6. in the case of direct agricultural advances, the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops;

7. in the case of direct agricultural advances, the instalment of principal or interest thereon remains overdue for one crop season for long duration crops;

8. a credit card account where the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the payment due date mentioned in the statement;

9. any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

35. In addition to the conditions in paragraph 34, an account may also be classified as NPA in terms of certain specific provisions of these Directions, including inter alia paragraphs 46 to 53 as well as instructions contained in the Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025.

36. Asset classification shall be borrower-wise and not facility-wise. All the facilities granted by a bank to a borrower and investments made in all the securities issued by the borrower shall have to be treated as NPA / Non-Performing Investment (NPI) and not the particular facility/investment or part thereof which has become irregular.

37. In addition to the principles in paragraph 35, where there is a threat of loss, or the recoverability of the advances is in doubt, the asset should be treated as NPA.

38. The classification of an asset as NPA shall be based on the record of recovery. A bank shall not classify an advance account as NPA merely due to the existence of some deficiencies which are temporary in nature such as non-availability of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non-submission of stock statements and non-renewal of the limits on the due date, etc.

39. A bank shall ensure that identification of NPAs is done on an on-going basis and accounts are classified as NPA immediately, as soon as they turn into NPA as per the guidelines contained in these Directions, without waiting till the end of quarter/financial year.

40. A bank shall report the figures of NPAs to the Regional Office of the Reserve Bank at the end of each year within two months from the close of the year in the prescribed proforma given in the Annex - I.

41. A bank shall ensure scrupulous compliance with the instructions for recognition of credit impairment and view aberrations by dealing officials seriously.

42. The Reserve Bank would continue to identify the divergences arising due to non-compliance, for fixing accountability. Where there is wilful non-compliance by the official responsible for classification and is well documented, the Reserve Bank would initiate deterrent action including imposition of monetary penalties.

C. Accounts regularised near about the balance sheet date

43. The asset classification of borrowal accounts where a solitary or a few credits are recorded before the balance sheet date shall be handled with care and without scope for subjectivity.

44. Where the account indicates inherent weakness on the basis of the data available, the account shall be deemed as NPA.

45. In other genuine cases, a bank shall furnish satisfactory evidence to the Statutory Auditors/Inspecting Officers about the manner of regularisation of the account to eliminate doubts on their performing status.

D. Specific cases of asset classification

46. Advances under consortium arrangements

1. Asset classification of accounts under consortium or multiple banking arrangements shall be based on the record of recovery of the individual member and other aspects having a bearing on the recoverability of the advances.

2. Where the remittances by the borrower under consortium lending arrangements are pooled with one consortium member and / or where the consortium member receiving remittances is not parting with the share of other members, the account will be treated as not serviced in the books of the other members and therefore, be treated as NPA.

3. A bank participating in the consortium shall, therefore, arrange to get their share of recovery transferred from the lead bank or get an express consent from the lead bank for the transfer of their share of recovery, to ensure proper asset classification in their respective books.

47. Advances against Term Deposits, National Savings Certificates (NSCs), Kisan Vikas Patras (KVPs), etc.

1. Advances against term deposits, NSCs eligible for surrender, KVPs and life insurance policies need not be treated as NPAs, provided adequate margin is available in the accounts.

2. Advances against gold ornaments, government securities and all other securities are not covered by this exemption.

48. Agricultural advances

(1) The NPA norms as per sub-paragraphs 34(6) and 34(7) shall be applicable only to the following direct agricultural advances:

(i) Finance to Individual Farmers for Agriculture and Allied Activities (Dairy, Fishery, Piggery, Poultry, Bee-keeping, etc.) – loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on such loans] engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage).

(ii) Loans to others [such as corporates, partnership firms and institutions] for Agriculture and Allied Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) up to an aggregate limit of ₹4 crore per borrower for the following purposes:

1. Short-term loans for raising crops, i.e. for crop loans. This shall include traditional/non-traditional plantations, horticulture and allied activities.

2. Medium & long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements, technological solutions, machinery and developmental activities undertaken in the farm and development loans for allied activities).

3. Loans for pre-harvest and post-harvest activities viz. spraying, harvesting, grading and transporting of their own farm produce.

4. Loans to farmers up to ₹2.5 crore against pledge / hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding twelve months, irrespective of whether the farmers were given crop loans for raising the produce or not.

5. Loans to small and marginal farmers (SMFs) for purchase of land for agricultural purposes.

6. Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral.

7. Export credit for exporting their own farm produce.

(iii) In respect of agricultural loans other than those specified in sub-paragraph (i), identification of NPAs shall be done on the same basis as non-agricultural advances.

(2) Depending upon the duration of crops raised by an agriculturist, the NPA norms as per sub-paragraphs 34(6) and 34(7) shall also be made applicable to agricultural term loans availed of by them.

(3) A bank shall ensure that while granting loans and advances, realistic repayment schedules are fixed on the basis of cash flows / fluidity with the borrowers.

(4) Where natural calamities impair the repaying capacity of agricultural borrowers, as a relief measure, a bank may decide on their own to:

1. Convert the short-term production loan into a term loan or re-schedule the repayment period, and

2. sanction fresh short-term loans

(5) In such cases of conversion or re-schedulement as in sub-paragraph (4), the term loan as well as fresh short-term loan may be treated as current dues and need not be classified as NPA. The asset classification of these loans would, therefore, be governed by the revised terms and conditions and these would be treated as NPA under the extant norms applicable for classifying agricultural advances as NPAs.

49. Government guaranteed advances

1. The credit facilities backed by guarantee of the Central Government though overdue shall be treated as NPA only when the Government repudiates its guarantee when invoked.

2. The exemption in sub-paragraph (1) above, is not for the purpose of recognition of income.

3. State Government guaranteed advances and investments in State Government guaranteed securities shall attract asset classification and provisioning norms if interest and / or principal or any other amount due to the bank remains overdue for more than 90 days.

50. Housing Loan to Staff

1. In the case of housing loan or similar advances granted to staff members where interest is payable after recovery of principal, interest need not be considered as overdue from the first month onwards.

2. Such loans / advances should be classified as NPA only when there is a default in repayment of instalment of principal or payment of interest on the respective due dates.

51. Gold loans

1. A bank shall fix monthly / quarterly instalments for repayment of gold loans for non-agricultural purposes taking into account the pattern of income generation and repayment capacity of the borrowers and such gold loan accounts shall be treated as NPAs if instalments of principal and / or interest thereon are overdue for more than 90 days.

2. In respect of gold loans granted for agricultural purposes, interest shall be charged at yearly intervals and payment shall coincide with the harvesting of crops.

3. Such advances shall be treated as NPA only if instalments of principal and / or interest become overdue after due date.

52. Transfer of Loan Exposures – The asset classification and provisioning requirements in respect of transactions involving transfer of loans shall be as per the Reserve Bank of India (Urban Co-operative Banks – Transfer and Distribution of Credit Risk) Directions, 2025.

53. Credit Card Accounts

1. A bank shall report a credit card account as ‘past due’ to credit information companies (CICs) or levy penal charges, viz. late payment charges, etc., if any, only when a credit card account remains ‘overdue’ for more than three days.

2. The number of ‘days overdue’ and late payment charges shall, however, be computed from the payment due date mentioned in the credit card statement.

E. Categories of non-performing assets

54. A bank shall classify its NPAs further into ‘substandard assets’; ‘doubtful assets’ and ‘loss assets’.

55. In the case of an NPA classified as substandard asset, the current net worth of the borrowers / guarantors or the current market value of the security charged is not enough to ensure recovery of the dues to the bank in full. Such assets will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.

56. A loan classified as doubtful has all the weaknesses inherent as that classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

57. A loss asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

58. Classification of assets into above categories should be done taking into account the degree of well-defined credit weaknesses.

59. Notwithstanding paragraph 38, in respect of accounts where there are potential threats for recovery on account of erosion in the value of security or non-availability of security and existence of other factors such as frauds committed by borrowers, the asset should be straightaway classified as doubtful or loss asset as appropriate.

Herein, frauds is in terms of the Master Directions on Fraud Risk Management in Urban Cooperative Banks (UCBs) / State Cooperative Banks (StCBs) / Central Cooperative Banks (CCBs) dated July 15, 2024, as updated from time to time.

60. For the purpose of paragraph 59, the following shall apply:

1. erosion in the value of security shall be reckoned as significant when the realisable value of the security is less than 50 per cent of the value assessed by the bank or accepted by the Reserve Bank at the time of last inspection, as the case may be. Such NPAs may be straightaway classified under doubtful category.

2. If the realisable value of the security, as assessed by the bank / approved valuers / the Reserve Bank is less than ten per cent of the outstanding in the borrowal accounts, the existence of security shall be ignored and the asset shall be straightaway classified as loss asset.

61. An asset classified as loss asset following the considerations of paragraph 59 and sub-paragraph 60(2) may be either written off after obtaining necessary permission from the competent authority as per the Co-operative Societies Act / Rules, or fully provided for by the bank.

F. Valuation of security

62. To bring down divergence arising out of difference in assessment of the value of security the following shall apply in cases of NPAs with balance of ₹10 lakh and above :

1. The current assets and their valuation shall be looked into at the time of Statutory Audit / Concurrent audit;

2. To enhance the reliability on stock valuations, stock audit at annual intervals by external agencies may be considered in case of larger advances;

3. Collaterals such as immovable properties charged in favour of the bank shall be valued once in three years by valuers appointed as per the guidelines approved by the Board of Directors.

G. Upgradation of loan accounts classified as NPAs

63. Where entire overdues pertaining to all the credit facilities availed by a borrower from a bank have been regularised by repayment through genuine sources (not by sanction of additional facilities or transfer of funds between accounts), the accounts may be upgraded to ‘standard’ asset category. Thus, the loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower.

64. In such cases, it shall be ensured that the accounts remain in order subsequently and a solitary credit entry made in an account on or before the balance sheet date which extinguishes the overdue amount of interest or installment of principal is not reckoned as the sole criteria for treatment of the account as a standard asset.

65. With regard to upgradation of accounts classified as NPA due to restructuring, non-achievement of date of commencement of commercial operations (DCCO), etc., the instructions as specified in the Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025 shall be applicable.

Chapter IV - Provisioning Norms

A. General Principles for Provisioning

66. Taking into account the time lag between an account becoming doubtful of recovery, its recognition as such, the realisation of the security and the erosion over time in the value of security charged to the bank, the bank shall make provision against substandard assets, doubtful assets and loss assets.

67. All provisions required as per these Directions, whether accounted for under the head “Bad and Doubtful Debt Reserve (BDDR)” or any other head of account, shall be charged as an expense to the Profit and Loss account in the accounting period in which they are recognized.

68. After charging all applicable provisions as per these Directions and other extant regulations to the Profit and Loss account, a bank may make any appropriations of net profits below the line to BDDR, if required as per the applicable statutes or otherwise.

69. A bank shall make provisions for NPAs as at the end of each calendar quarter i.e. as at the end of March / June / September / December, so that the income and expenditure account for the respective quarters as well as the Profit and Loss account and balance sheet for the year end reflects the provision made for NPAs.

B. Provisions in respect of Standard assets

70. A bank shall make provisions for Standard assets as per the following requirements:

71. The provisions towards ‘standard assets’ shall not be netted from gross advances but shall be shown separately as ‘Contingent Provision against Standard Assets’ under ‘Other Funds and Reserves’ {item.2 (viii) of Capital and Liabilities} in the Balance Sheet.

72. In case a bank is already maintaining excess provision than what is required / prescribed by Statutory Auditor / Reserve Bank Inspection for impaired credits under Bad and Doubtful Debt Reserve or any other head of account / provisions for NPA, additional provision required for standard assets shall be segregated and the same shall be parked under the head ‘Contingent Provisions against Standard Assets’ with the approval of their Board of Directors. Shortfall if any, on this account may be made good in the normal course.

Explanation: The provisions referred to in this sub-paragraph are provisions created above the line i.e. by charging as an expense to the Profit and Loss account.

73. The contingent provisions as per paragraph 72 shall be eligible for inclusion in Tier II capital.

C. Provisions in respect of substandard assets

74. A general provision of ten per cent on total outstanding should be made without making any allowance for Export Credit Guarantee Corporation (ECGC) guarantee cover and securities available.

D. Provisions in respect of Doubtful Assets

75. Provision shall be 100 per cent of the extent to which the advance is not covered by the realisable value of the security to which the bank has a valid recourse.

76. For the purpose of paragraph 75, the realisable value should be estimated on a realistic basis.

77. In regard to the secured portion, provision shall be made on the following basis, at the rates ranging from twenty per cent to 100 per cent of the secured portion depending upon the period for which the asset has remained doubtful:

E. Provisions in respect of Loss Assets

78. The entire assets should be written off after obtaining necessary approval from the competent authority and as per the provisions of the Co-operative Societies Act / Rules.

79. If the assets are permitted to remain in the books for any reason, 100 per cent of the outstanding should be provided for.

F. Additional Provisions at higher than prescribed rates

80. There is no objection if a bank creates bad and doubtful debts reserve beyond the specified limits on its own or if provided in the respective State Co-operative Societies Acts.

G. Provisions under Special Circumstances

81. Provisioning Pertaining to Fraud Accounts

1. The entire amount due to the bank (irrespective of quantum of security held against such assets), or for which the bank is liable (including in case of deposit accounts), shall be provided for over a period not exceeding four quarters commencing with the quarter in which the fraud has been detected;

2. Where there has been delay beyond the prescribed period, in reporting the fraud to the Reserve Bank, the entire provisioning shall be made at once.

3. In addition to sub-paragraph (2) above, the Reserve Bank may also initiate appropriate supervisory action where there has been delay by the bank in reporting a fraud or provisioning there against.

82. Project Finance

(1) For project finance exposures, a bank shall maintain a general provision at the following rates for the funded outstanding on a portfolio basis:

(2) For accounts which have availed DCCO deferment and are classified as ‘standard’, the bank shall maintain additional specific provisions as per Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025.

(3) The provisions stipulated in sub-paragraphs (1) and (2) shall not be applicable for projects where financial closure has been achieved as on October 1, 2025, and such project loans shall continue to be guided by the prudential guidelines prevailing before October 1, 2025 for the purpose of provisioning, which otherwise shall be treated as repealed.

(4) Notwithstanding sub-paragraph (3), in case of any resolution of a fresh credit event and/or change in material terms and conditions in the loan contract in such projects, subsequent to October 1, 2025, the provisions stipulated in sub-paragraphs (1) and (2) shall apply to these projects as if these were sanctioned post October 1, 2025.

(5) Provisioning for project loans classified as NPA shall be as per the instructions in paragraphs 74 to 79 of these Directions.

83. Provisioning for Retirement Benefits – The liabilities of a bank in the form of retirement benefit schemes for their staff, viz. Provident Fund, Gratuity and Pension, etc. shall be estimated on actuarial basis and full provision shall be made every year for the purpose in their Profit and Loss account.

84. State Government guaranteed Advances – State Government guaranteed advance and investment in State Government guaranteed securities shall attract extant provisioning norms on the basis of classification of assets into prescribed categories as detailed in these Directions.

85. Advances covered by ECGC guarantee

1. In the case of advances classified as doubtful and guaranteed by ECGC, provision shall be made only for the balance in excess of the amount guaranteed by the Corporation.

2. Further, while arriving at the provision required to be made for doubtful assets, realizable value of the securities shall first be deducted from the outstanding balance in respect of the amount guaranteed by the Corporation and then provision made.

Illustration II:

Provision required to be made:

86. Advances covered by guarantees under any existing or future schemes launched by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) and National Credit Guarantee Trustee Company Ltd (NCGTC).

1. In case the advance covered by any existing or future schemes/guarantees launched by CGTMSE, CRGFTLIH and NCGTC becomes non­performing, no provision need be made towards the guaranteed portion.

2. The amount outstanding, in excess of the guaranteed portion, shall be provided for as per the extant guidelines on provisioning for non-performing assets.

Illustration III:

Provision required to be made:

87. Advances against fixed / term deposit, NSCs eligible for surrender, KVPs, and life policies are exempted from provisioning requirements.

88. Advances against gold ornaments, government securities and all other kinds of securities shall attract provisioning requirements as applicable to their asset classification status.

89. Interbank exposure of banks under All Inclusive Directions

1. The interbank exposures arising from deposits placed by a bank with a bank under All-Inclusive Directions (AID) and their non-performing exposures arising from discounted bills drawn under LCs issued by a bank under AID shall be fully provided within five years at the rate of 20 per cent annually.

2. If the banks choose to convert such deposits into long term perpetual debt instruments (e.g. Innovative Perpetual Debt Instrument - IPDI) which may be recognised as capital instrument under a scheme of restructuring/ revival of a bank under AID, provision on the portion of deposits converted into such instruments shall not be required.
   

Chapter V - Income Recognition

A. General Principles for Income Recognition

90. A bank may recognise income on accrual basis only in respect of credit facilities which are classified as ‘standard’.

91. For credit facilities which are not classified as ‘standard’, including those guaranteed by Government, income shall be recognized on actual receipt basis i.e. cash basis.

92. Notwithstanding paragraph 91, interest on advances against Term Deposits, NSCs, KVPs, and life insurance policies may be taken to income account on the due date, provided adequate margin is available in the accounts.

93. Fees and commissions earned by a bank as a result of renegotiations or rescheduling of outstanding debts shall be recognised on an accrual basis over the period of time covered by the renegotiated or rescheduled extension of credit.

94. In cases of loans where moratorium has been granted for repayment of interest, income may be recognised on accrual basis for accounts which continue to be classified as ‘standard’. This shall be evaluated against the definition of ‘restructuring’ ‘provided in Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025.

95. A bank undertaking equipment leasing shall follow prudential accounting standards.

96. Lease rentals comprise of two elements - a finance charge (i.e. interest charge) and a charge towards recovery of the cost of the asset. The interest component alone should be taken to income account.

97. Such interest component taken to income account, before the asset became NPA, if unrealised shall be reversed or provided for.

98. In case of NPAs, as a prudential norm, there is no use in debiting the said account by interest accrued in subsequent months and taking this accrued interest amount as income of the bank as the said interest is not being received. It is simultaneously desirable to show such accrued interest separately or park in a separate account so that interest receivable on such NPA account is computed and shown as such, though not accounted as income of the bank for the period.

99. If interest is not actually received for any reason in an account and the account is to be treated as an NPA, then the amount of interest so taken to income shall be either reversed or provided for in full.

100. Interest accrued in respect of non-performing advances shall not be debited to borrowal accounts but shown separately under 'Interest Receivable Account' on the 'Property and Assets' side of the balance sheet and corresponding amount shown under 'Overdue Interest Reserve Account' on the 'Capital and Liabilities' side of the balance sheet.

101. In respect of borrowal accounts, which are treated as performing assets, accrued interest can alternatively be debited to the borrowal account and credited to Interest account and taken to income account.

102. In case the accrued interest in respect of the borrowal account is not actually realised and the account has become NPA, interest accrued and credited to income account shall be either reversed or provided for in full.

Illustrative Accounting Entries to be passed in respect of Accrued Interest on both the Performing and Non-performing Advances

I. Accrued Interest on Performing Advances

i) Accrued interest in respect of performing advances may be charged to borrowal accounts and taken to income account. Illustratively, if the accrued interest is ₹10,000/- in respect of performing advances of a borrower 'X' (cash credit, overdraft, loan account, etc.) the following entries can be passed in the Books of Account.

ii) In case the accrued interest of ₹10,000/- in respect of the borrowal account is not actually realised and the account has become NPA, interest accrued and credited to income account should be reversed or provided for if the same is not realised by passing the following entries:

iii) In case accrued interest is realised subsequently, the following entries may be passed:

II. Accrued Interest on Non - Performing Advances

i) Accrued interest in respect of non-performing advances may be debited to 'Interest Receivable Account' and corresponding amount credited to 'Overdue Interest Reserve Account'. For example, if the interest accrued in respect of Cash Credit / OD / Loan etc. account of a borrower 'Y' is ₹20,000/- the accounting entries may be passed as under:

ii) Subsequently, if interest is actually realised, the following accounting entries may be passed:

III. Accounting of Overdue Interest in Loan Ledgers & Balance Sheet

1. With a view to facilitating the banks to work out the amount of interest receivable in respect of each nonperforming borrowal account, a bank can consider opening a separate column in the individual ledger accounts of such borrowers and interest receivable shown therein. This would enable the banks to determine at a particular point of time, the amount of interest actually to be recovered from the borrowers. Total of the amounts shown under the separate columns in the loan ledgers would be interest receivable in respect of non-performing advances and it would get reflected as such on the 'assets' side of balance sheet with a corresponding item on the liabilities side of the balance sheet as 'Overdue Interest Reserve'.

2. Similarly, a separate column should be provided in the loan ledger in respect of performing advances for showing accrued interest taken to income account.If the accrued interest is not realised and the account becomes NPA, the amount has to be reversed or provided for.

103. Overdue interest reserve is not created out of the real or earned income received by a bank and hence, the amounts held in the Overdue Interest Reserve Account shall not be regarded as 'reserve' or a part of the owned funds of the bank.

104. The Balance Sheet format prescribed under the Third Schedule to the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies) requires the banks to show 'Overdue Interest Reserve' as a distinct item on the 'Capital and Liabilities' side vide item 8 thereof.

105. The interest receivable on the deposits placed by a bank with a bank under AID shall not be recognised as income by the bank.

B. Reversal of income upon classification as NPA

106. If any advance, including bills purchased and discounted becomes NPA, the entire interest accrued and credited to income account in the past periods, shall be reversed if the same is not realised. This will also apply to Government guaranteed accounts which remain overdue for more than 90 days.

107. If loans with moratorium on payment of interest (permitted at the time of sanction of the loan) become NPA after the moratorium period is over, the capitalized interest, if any, corresponding to the interest accrued during such moratorium period need not be reversed.

108. In respect of NPAs, fees, commission and similar income that have accrued shall cease to accrue in the current period and shall be reversed with respect to past periods, if uncollected.

C. Appropriation of recovery from NPAs

109. Interest realised on NPAs may be taken to income account provided the credits in the accounts towards interest are not out of fresh / additional credit facilities sanctioned to the borrower concerned.

110. In the absence of a clear agreement between a bank and the borrower for the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest due), the bank shall adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner.

D. Booking of Income on Investments in Shares & Bonds

111. The investments are also subject to the prudential norms on income recognition. A bank shall not book income on accrual basis in respect of any security, irrespective of the category in which it is included, where the interest / principal is in arrears for more than 90 days.

112. Income on units of UTI and equity of All India Financial Institutions shall be booked on cash basis and not on accrual basis.

113. In respect of income from Government securities / bonds of public sector undertakings and All India Financial Institutions, where interest rates on the instruments are predetermined, income may be booked on accrual basis, provided interest is serviced regularly and is not in arrears.

Chapter VI - Repeal and Other Provisions

A. Repeal and saving

114. With the issue of these Directions, the existing directions, instructions, and guidelines relating income recognition, asset classification and provisioning as applicable to Urban Co-operative Banks stand repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025. The directions, instructions and guidelines already repealed vide any of the directions, instructions, and guidelines listed in the above notification shall continue to remain repealed.

115. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect:

1. any right, obligation or liability acquired, accrued, or incurred thereunder;

2. any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder;

3. any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed.

B. Application of other laws not barred

116. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force.

C. Interpretations

117. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the Reserve Bank may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the Reserve Bank shall be final and binding.

Vaibhav Chaturvedi
(Chief General Manager)