Not yet independently checked — please confirm with the official RBI source below
Source: Reserve Bank of India · RBI/2026-27/202 · issued FY 2026-27 · ~1 min read
Quick answerFrom Oct 1, 2026, Local Area Banks cannot book accrued but unrealised interest on extinguished exposures when acquiring Specified Non-Financial Assets (SNFA). Any such income already booked must be reversed by Sep 30, 2027. Income from SNFA goes to non-interest income.
The rule, in the simplest words
If a bank gets a building or machine (SNFA) instead of loan repayment, it cannot count the interest that was due but not paid before getting the asset as income.
Any such interest already counted as income must be removed from profit by Sep 30, 2027, if still not received.
Money earned from selling or renting that SNFA must be shown as 'other income', not interest income.
Money spent to keep the SNFA in good condition must be recorded as an expense in the same year it is spent.
How it plays out — a real example
Ravi, the CFO of a Local Area Bank, reviews the SNFA portfolio and finds a piece of land acquired in a loan settlement. The bank had booked Rs 5 lakh as accrued interest on the old loan. Under the new rule, Ravi reverses this Rs 5 lakh from profit by Sep 30, 2027, and records any future sale proceeds as non-interest income.
What changed
RBI inserted new paragraphs 119C and 119D in Chapter V of the LAB Income Recognition, Asset Classification and Provisioning Directions. These rules bar banks from recognising accrued but unrealised interest/charges on extinguished exposures upon SNFA acquisition. Existing unrealised income must be reversed by Sep 30, 2027.
What it means for you
Local Area Banks must treat SNFA-related income as non-interest income only when realised, not when accrued. This tightens income recognition discipline and prevents premature profit booking. Banks need to review their SNFA portfolios and reverse any unrealised income by the deadline.
What you must do
Identify all SNFA acquisitions where accrued but unrealised interest/charges are still booked as income.
Reverse such unrealised income through P&L by September 30, 2027.
Classify any future income from SNFA as non-interest/other income only upon realisation.
Account for SNFA upkeep expenses in the year incurred.
Who it affects
Local Area Banks (LABs), LAB finance and risk teams, LAB auditors
❓ Common questions
What is an SNFA?
Specified Non-Financial Assets are assets acquired by banks in resolution of stressed exposures, as defined in the related stressed assets directions.
When does this amendment take effect?
It comes into force from October 1, 2026.
What if we have already recognised such income before Oct 1, 2026?
You must reverse any unrealised portion through the Profit and Loss account by September 30, 2027.
📜 Read the original circular — full text as issued by RBI
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/202 · issued FY 2026-27. 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 (Local Area Banks (LABs), LAB finance and risk teams, LAB auditors), your first concrete step on “LABs: Income Recognition on SNFA Acquisition” is: “Identify all SNFA acquisitions where accrued but unrealised interest/charges are still booked as income.” (RBI issued this FY 2026-27).
Circular: RBI/2026-27/202 -- LABs: Income Recognition on SNFA Acquisition
Issued: FY 2026-27
Action required: Identify all SNFA acquisitions where accrued but unrealised interest/charges are still booked as income.
Action required: Reverse such unrealised income through P&L by September 30, 2027.
Action required: Classify any future income from SNFA as non-interest/other income only upon realisation.
Action required: Account for SNFA upkeep expenses in the year incurred.
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 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=13580&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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