Current · Source: Reserve Bank of India · RBI/2025-26/208 · issued 13 Feb 2026 · ~1 min read
Quick answerRBI updates income recognition rules for rural co-operative banks, allowing accrual basis without matching provisions for standard advances.
The rule, in the simplest words
Rural co-operative banks can now count interest as earned (accrual basis) for loans that are 'Standard' (not overdue), without needing to set aside extra money (matching provision).
For loans that are not 'Standard' (overdue or bad), banks must only count interest when they actually get the cash (cash basis).
If a loan becomes 'NPA' (non-performing asset, meaning it's not being repaid), the bank must reverse any interest it already counted as earned but hasn't actually received.
The bank's rule for counting income must be based on how well the borrower is repaying (record of recovery).
How it plays out — a real example
A co-operative bank branch officer in a rural co-operative bank in Madurai reviews a farmer's loan that is being repaid on time (Standard). Under the new rule, the officer can record the interest as earned each month without setting aside a matching provision, simplifying the accounting. Later, if another farmer's loan turns bad (NPA), the officer must reverse any interest previously counted but not yet collected, ensuring the books show only real income.
What changed
The RBI has amended the income recognition, asset classification, and provisioning rules for rural co-operative banks. The changes allow banks to recognize income on an accrual basis without making matching provisions for standard advances. Additionally, the policy on income recognition should be based on the record of recovery.
What it means for you
The amendments aim to ensure uniformity in income recognition and harmonize the rules with other regulated entities. This change may impact the financial reporting and provisioning requirements of rural co-operative banks. Banks will need to review their income recognition policies and adjust their accounting practices accordingly.
What you must do
Review income recognition policies
Update accounting practices for standard advances
Ensure compliance with amended rules
Who it affects
Rural co-operative banks, Banking regulators, Accounting and finance teams
❓ Common questions
What is the effective date of the amendments?
The amendments come into force with immediate effect.
How will the changes impact financial reporting?
The changes may impact the financial reporting and provisioning requirements of rural co-operative banks.
📜 Read the original circular — full text as issued by RBI
RBI/2025-26/208
DOR.STR.REC.411/21-04-048/2025-26
February 13, 2026
Reserve Bank of India (Rural Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026
Please refer to Reserve Bank of India (Rural Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 (hereinafter referred to as ‘the Directions’).
2. With a view to ensuring uniformity in the recognition of overdue income (interest, fee, commission or other income) in Standard advances by Rural Co-operative Banks as well as to harmonise the same in line with other Regulated Entities, it has been decided that in case of Standard advances, banks shall recognise income on accrual basis without the requirement of making any matching provision.
3. Accordingly, in exercise of the powers conferred by the sections 21, 35A and 56 of the Banking Regulation Act, 1949 and all other laws enabling 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.
4. The Amendment Directions modifies the Directions as under:
i. Paragraph 52 shall be deleted.
ii. After paragraph 52, a new paragraph 52A shall be inserted, as under:
52A.The policy on income recognition should be based on record of recovery. A bank may recognise income, including interest, fee, commission or other income, on accrual basis in respect of credit facilities which are classified as ‘Standard’, without the requirement of making any matching provision. 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.
iii. Paragraphs 53 - 56 shall be deleted.
iv. Paragraph 58 shall be deleted.
v. After paragraph 58, a new paragraph 58A shall be inserted, as under:
58A. If any credit facility, including bills purchased and discounted, as well as those guaranteed by Government, becomes NPA, the entire interest, fees, commission and other income accrued and credited to income account in the past periods, shall be reversed if the same is not realised.
5. The above amendments shall come into force with immediate effect.
(Vaibhav Chaturvedi)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2025-26/208 · issued 13 Feb 2026. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (Rural co-operative banks, Banking regulators, Accounting and finance teams), your first concrete step on “RBI Amends Income Recognition Rules” is: “Review income recognition policies” (RBI issued this 13 Feb 2026).
Circular: RBI/2025-26/208 -- RBI Amends Income Recognition Rules
Issued: 13 Feb 2026
Action required: Review income recognition policies
Action required: Update accounting practices for standard advances
Action required: Ensure compliance with amended rules
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13292&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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