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nid 92230
Apr 28, 2026
pthandapani@vixio.com
India
Reserve Bank of India
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1637 charsIndia's Reserve Bank Issues Final Directions on Asset Classification and Provisioning for Commercial Banks
On April 27, 2026, the Reserve Bank of India (RBI) issued final Directions on Asset Classification, Provisioning, and Income Recognition for Commercial Banks. The RBI had previously released draft Directions for stakeholder feedback on October 7, 2025. Following examination of feedback received, the RBI incorporated modifications into the final Directions.
The final Directions are accompanied by 13 Amendment Directions and one Repeal Direction affecting multiple regulatory frameworks for commercial banks and related institutions. These include amendments to directions on resolution of stressed assets, concentration risk management, classification and valuation of investment portfolios, credit risk management, credit cards and debit cards issuance and conduct, asset liability management, credit facilities, financial statements presentation and disclosures, transfer and distribution of credit risk, treatment of wilful defaulters and large defaulters, and prudential norms on capital adequacy. The RBI also issued amendments to directions applicable to non-operative financial holding companies and urban cooperative banks regarding resolution of stressed assets. Additionally, the RBI repealed the Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions.
The Directions will come into effect on April 1, 2027. The RBI indicated that separate Directions on Asset Classification, Provisioning, and Income Recognition for All India Financial Institutions will be issued at a later date.
**Reference:**
Reserve Bank of India Press Release: 2026-2027/150 (April 27, 2026)
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2068 charsReserve Bank of India Issues Directions on Asset Classification and Provisioning for Commercial Banks
The Reserve Bank of India (RBI) has issued the "Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026."
The directions prescribe:
Implementation of the Expected Credit Loss (ECL) framework mandating banks to adopt a forward-looking provisioning approach by classifying financial instruments into a "three-stage" approach: Stage 1 for assets with no significant increase in credit risk (SICR) requiring a 12-month ECL; Stage 2 for assets with SICR requiring a lifetime ECL; and Stage 3 for credit-impaired assets also requiring a lifetime ECL.
Stage 1 for assets with no significant increase in credit risk (SICR) requiring a 12-month ECL;
Stage 2 for assets with SICR requiring a lifetime ECL; and
Stage 3 for credit-impaired assets also requiring a lifetime ECL.
Asset classification and income recognition retaining the 90-day overdue standard for Non-Performing Asset (NPA) classification while adopting the effective interest rate (EIR) method for measuring financial assets at amortized cost and recognizing interest income.
Fair valuation and transition arrangements requiring banks to fair value their entire loan portfolio on the transition date of April 1, 2027, adjusting the difference against retained earnings, and permitting a phased transitional adjustment to Common Equity Tier 1 (CET1) capital over a period ending March 31, 2031.
Prudential floors and specific provisioning establishing stage-wise and product-wise prudential floors that act as regulatory backstops for ECL computations, and requiring additional provisions for specific cases like fraud, foreign exchange fluctuations, and willful defaulters.
Model risk management and governance instituting a three-tier model risk management framework encompassing front-line operations, risk management and compliance, and internal audit, while outlining broad principles for model selection, documentation, validation, and the incorporation of macroeconomic variables.
The directions will come into force on April 1, 2027.