RBI tightens income recognition rules for SNFA acquisitions by AIFIs
Not yet independently checked — please confirm with the official RBI source below
Source: Reserve Bank of India · RBI/2026-27/198 · issued FY 2026-27 · ~2 min read
Quick answerFrom Oct 1, 2026, AIFIs cannot book past unpaid interest/charges on extinguished exposures as income when acquiring a Specified Non-Financial Asset (SNFA). Any such income already booked must be reversed by Sep 30, 2027. SNFA income goes under 'non-interest/other income' only when realised.
The rule, in the simplest words
If an AIFI takes over a building or machine (SNFA) to settle a bad loan, it cannot count the old unpaid interest as income anymore.
Any old unpaid interest already counted as income must be removed from profit by Sep 30, 2027, if not yet received in cash.
Money earned from the SNFA (like rent or sale) must be shown as 'other income', not interest income, and only when actually received.
Costs to maintain the SNFA (like repairs) must be recorded in the year they are spent.
These rules start on Oct 1, 2026.
How it plays out — a real example
Ravi, CFO of an AIFI, reviews a warehouse acquired in Dec 2025 to settle a ₹10 crore NPA. He had booked ₹50 lakh of unpaid interest as income. Under the new rule, he must reverse that ₹50 lakh by Sep 30, 2027, if still unpaid. Any rent from the warehouse from Oct 1, 2026, goes as 'other income' only when collected.
What changed
RBI inserted new paragraphs 116C and 116D in Chapter V of the IRAC norms for AIFIs. Previously, accrued but unrealised interest on extinguished exposures could be recognised upon SNFA acquisition; now it is prohibited. Any such income already booked must be reversed by Sep 30, 2027.
What it means for you
AIFIs can no longer inflate income by recognising unpaid interest from old loans when they take over physical assets. This forces conservative accounting—income from SNFA is booked only on cash realisation. Banks must review existing SNFA holdings and reverse any unrealised accrued interest by the deadline, impacting P&L.
What you must do
Identify all SNFA acquisitions in your books as of Sep 30, 2026, and calculate any accrued but unrealised interest/charges already recognised.
Reverse such income through P&L by Sep 30, 2027, to the extent still unrealised on that date.
Reclassify all future SNFA income as 'non-interest/other income' and recognise only upon realisation.
Update internal accounting policies and system configurations to comply with the new recognition rules from Oct 1, 2026.
Train credit and finance teams on the revised treatment to avoid misreporting.
Who it affects
All India Financial Institutions (AIFIs) covered under RBI's IRAC Directions, Credit risk and finance teams at AIFIs, Auditors reviewing AIFI financial statements
❓ Common questions
What is a Specified Non-Financial Asset (SNFA)?
The source does not define SNFA; it refers to assets acquired by AIFIs under stressed asset resolution. For precise definition, refer to the RBI's Stressed Assets Directions.
Does this apply to interest accrued after SNFA acquisition?
No. The rule only covers accrued but unrealised interest/charges from the extinguished exposure (i.e., prior to acquisition). Post-acquisition income is recognised as per para 116D.
What if we have already reversed such income before Sep 30, 2027?
You are compliant. The deadline is the latest date; earlier reversal is permitted.
📜 Read the original circular — full text as issued by RBI
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/198 · issued FY 2026-27. The plain-English explanation above is BankPulse’s own independent summary.
Update internal accounting policies and system configurations to comply with the new recognition rules from Oct 1, 2026.
📜 Compliance
Identify all SNFA acquisitions in your books as of Sep 30, 2026, and calculate any accrued but unrealised interest/charges already recognised.
Reverse such income through P&L by Sep 30, 2027, to the extent still unrealised on that date.
Reclassify all future SNFA income as 'non-interest/other income' and recognise only upon realisation.
Train credit and finance teams on the revised treatment to avoid misreporting.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All India Financial Institutions (AIFIs) covered under RBI's IRAC Directions, Credit risk and finance teams at AIFIs, Auditors reviewing AIFI financial statements), your first concrete step on “RBI tightens income recognition rules for SNFA acquisitions by AIFIs” is: “Identify all SNFA acquisitions in your books as of Sep 30, 2026, and calculate any accrued but unrealised interest/charges already recognised.” (RBI issued this FY 2026-27).
Circular: RBI/2026-27/198 -- RBI tightens income recognition rules for SNFA acquisitions by AIFIs
Issued: FY 2026-27
Action required: Identify all SNFA acquisitions in your books as of Sep 30, 2026, and calculate any accrued but unrealised interest/charges already recognised.
Action required: Reverse such income through P&L by Sep 30, 2027, to the extent still unrealised on that date.
Action required: Reclassify all future SNFA income as 'non-interest/other income' and recognise only upon realisation.
Action required: Update internal accounting policies and system configurations to comply with the new recognition rules from Oct 1, 2026.
Action required: Train credit and finance teams on the revised treatment to avoid misreporting.
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
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 16 Jul 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=13576&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert review panel. 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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