What changed
RBI introduced a comprehensive framework for LABs covering early identification and reporting of stressed assets, board-approved policies, and disclosures. It rationalized instructions on compromise settlements and technical write-offs. For the first time, it laid down prudential norms and a model operating procedure for LABs participating in state government debt relief schemes.
What it means for you
LABs must now follow a structured process for early stress detection and resolution, similar to larger banks, which will improve asset quality and reduce NPAs. The new guidelines on debt relief schemes aim to prevent moral hazard and ensure timely receipt of government dues, but may require LABs to align their internal policies with state schemes. Banks will need to update their board-approved policies and disclosure frameworks to comply.
What you must do
- Review and update board-approved policies for early stress identification and resolution of stressed assets.
- Align internal processes for compromise settlements and technical write-offs with the new directions.
- Establish a model operating procedure for participation in state government debt relief schemes, ensuring timely receipt of dues.
- Enhance disclosure practices to meet the new reporting requirements under the directions.
Who it affects
Local Area Banks (LABs), Borrowers of LABs, State Governments implementing debt relief schemes, RBI supervisory teams
What is the effective date of these directions?
The directions came into force with immediate effect from the date of issuance, i.e., November 28, 2025, unless specified otherwise in the document.