What changed
The amendment modifies the Directions to align with the new Asset Classification Directions. It requires Stage 1 and 2 provisions to be shown separately under 'Others' in Schedule 5, not netted from advances. Interest income computation for assets under paragraph 17 of the new classification directions must follow those rules. The broken period interest expense capitalization rule for government securities is deleted. Non-recognition of income on Stage 3 assets will not trigger auditor qualification. Impairment standard for non-banking assets generally applies only when impairment indicators are evident. A transitional arrangement for regulatory capital is inserted.
What it means for you
Banks must update their balance sheet and profit and loss account presentation to reflect the new provisioning and income recognition rules. The separate disclosure of Stage 1 and 2 provisions increases transparency but may impact reported net advances. The deletion of broken period interest capitalization simplifies accounting but could affect investment cost calculations. The auditor qualification exemption reduces compliance burden for Stage 3 income non-recognition. Banks need to ensure systems capture these changes accurately for regulatory reporting.
What you must do
- Update balance sheet Schedule 5 to show Stage 1 and 2 provisions separately under 'Others'.
- Revise interest income computation for assets under paragraph 17 of the 2026 Asset Classification Directions.
- Remove broken period interest capitalization from government security acquisition costs.
- Ensure auditors are aware of the exemption for Stage 3 income non-recognition.
- Implement transitional arrangement for regulatory capital as per the new directions.
Who it affects
All commercial banks in India, Bank finance and accounting teams, Statutory auditors of banks, Regulatory reporting departments
What happens to the broken period interest on government securities?
Banks can no longer capitalize broken period interest as part of investment cost; it must be booked as an expense.