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RBI's New Financial Reporting Rules for Local Area Banks

Current · Source: Reserve Bank of India · RBI/DOR/2025-26/241 · issued 28 Nov 2025 · ~2 min read

Quick answerRBI issued Directions for Local Area Banks (LABs) on financial statement presentation and disclosures, effective November 28, 2025. These replace older guidelines, mandating balance sheet formats per the Banking Regulation Act's Third Schedule and compliance with updated Accounting Standards.

The rule, in the simplest words

Local Area Banks (small banks that work in a few districts) must use the exact balance sheet format given in the Third Schedule of the Banking Regulation Act (a law for banks).
Advances (loans given to people or companies) must be sorted into groups like 'Priority Sector' (loans for farming or small businesses), 'Public Sector' (loans to the government), 'Banks' (loans to other banks), and 'Others' (all remaining loans).
When reporting advances, subtract the money set aside for bad loans (provisions), except for provisions on good loans (Standard Assets). Also, if you have floating provisions (extra safety money) not counted as Tier 2 capital (a type of bank safety fund), subtract those too.
Loans that are secured by rights or licenses (like permission to build a road) are treated as unsecured (not safe) because those are not considered real physical security.
Reverse Repo (a short-term loan where the bank gives cash and gets securities) that lasts more than 14 days must be shown under 'Cash credits, overdrafts and loans repayable on demand' and as 'Secured by tangible assets'.

How it plays out — a real example

A branch operations officer in a Local Area Bank in Mysore is preparing the bank's financial statements. She sees a loan given to a local farmer for buying seeds, which is a priority sector loan, so she puts it under 'Priority Sector'. She also has a loan to the state government for building a school, which she puts under 'Public Sector'. For a loan to another small bank, she puts it under 'Banks'. She remembers to subtract the provisions (money set aside for possible defaults) from the total advances, except for the provisions on good loans that are still performing well.

What changed

RBI issued the Reserve Bank of India (Local Area Banks – Financial Statements: Presentation and Disclosures) Directions, 2025, effective immediately from November 28, 2025. These Directions consolidate and update the format and disclosure requirements for LABs' balance sheets and profit and loss accounts, referencing the Third Schedule of the Banking Regulation Act, 1949. They also require strict compliance with the Companies (Accounting Standards) Rules, 2021, subject to RBI guidelines.

What it means for you

Local Area Banks must now align their financial statements with the specified formats in the Third Schedule and follow updated compilation instructions. This ensures uniformity and transparency in reporting, reducing ambiguity. Banks need to review their current reporting practices to ensure compliance with the new Directions and the latest Accounting Standards.

What you must do

Review the new Directions and update your bank's financial statement formats to match the Third Schedule of the Banking Regulation Act, 1949.
Ensure compliance with the Companies (Accounting Standards) Rules, 2021, as amended, for all accounting treatments.
Train your finance and compliance teams on the specific disclosure requirements and compilation instructions in the Directions.
Update internal policies and reporting templates to reflect the changes effective from November 28, 2025.

Who it affects

Local Area Banks (LABs), Finance and accounting departments of LABs, Compliance officers at LABs, Auditors of LABs

❓ Common questions

Regulatory timeline

Stated effective date effective November 28, 2025
Decoded by BankPulse 2026-06-17 22:02 IST

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

When do these Directions come into effect?

The Directions come into force with immediate effect from November 28, 2025.

Which banks are covered under these Directions?

These Directions apply to all Local Area Banks (LABs) as defined by RBI.

What is the key change in financial statement format?

LABs must now prepare their balance sheet and profit and loss account in the Forms set out in the Third Schedule of the Banking Regulation Act, 1949, as specified by the Government of India.

📜 Read the original circular — full text as issued by RBI

Advances shall be classified on the sectoral basis as indicated. Advances, which qualify as priority sector lending according to extant RBI instructions are to be classified under the head ‘Priority Sector’. Such advances shall be excluded from item (ii), i.e., advances to public sector. Advances to Central / State Governments and other Government undertakings including Government Companies and statutory corporations shall be included in the category ‘Public Sector’.

 All advances to the banking sector including Co-operative Banks shall come under the head ‘Banks’. All the remaining advances will be included under the head ‘Others’ and typically this category will include non-priority sector advances to the private, joint, and co-operative sectors.

 Notes: 

 1. Advances shall be reported net of provisions made thereon (other than provisions towards Standard Assets). To the extent that Floating provisions have not been treated as Tier 2 capital, they shall also be netted off from advances.

 2. Term loans reported shall not include loans repayable on demand. 

 3. Consortium advances shall be reported net of share of other participating banks / institutions. 

 4. All interest-bearing loans and advances granted to bank’s own staff shall be included here.

 5. Advances to other banks / organisations shall be included here.

 6. Interest accrued but not due should not be reflected here. Instead, it shall be shown under ‘Interest accrued’ in other assets.

 7. Rights, licenses, authorisations, etc., charged to the bank as security / collateral in respect of projects (including infrastructure projects) financed by them, shall not be reckoned as tangible security. Such advances shall be reckoned as unsecured.

 8. Partial credit enhancement facilities to the extent drawn shall be treated as an advance.

 9. The aggregate amount of inter - bank participations with risk sharing would be reduced from the aggregate advances outstanding by issuing bank. Participating bank shall show the amount of inter-bank participations under advances. Where the participation is without risk sharing, it shall be reflected by the participating bank as due from Banks under Schedule 9.

 10. Reverse Repo with banks and other institutions having original tenors more than 14 days shall be shown under this Schedule under following head: i. A.(ii) ‘Cash credits, overdrafts and loans repayable on demand’
 ii. B.(i) ‘Secured by tangible assets’
 iii. C.(I).(iii) Banks (iv) ‘Others’ (as the case may be)

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/DOR/2025-26/241 · issued 28 Nov 2025. The plain-English explanation above is BankPulse’s own independent summary.

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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (Local Area Banks (LABs), Finance and accounting departments of LABs, Compliance officers at LABs, Auditors of LABs), your first concrete step on “RBI's New Financial Reporting Rules for Local Area Banks” is: “Review the new Directions and update your bank's financial statement formats to match the Third Schedule of the Banking Regulation Act, 1949.” (RBI issued this 28 Nov 2025).

Circular: RBI/DOR/2025-26/241 -- RBI's New Financial Reporting Rules for Local Area Banks
Issued: 28 Nov 2025
Action required: Review the new Directions and update your bank's financial statement formats to match the Third Schedule of the Banking Regulation Act, 1949.
Action required: Ensure compliance with the Companies (Accounting Standards) Rules, 2021, as amended, for all accounting treatments.
Action required: Train your finance and compliance teams on the specific disclosure requirements and compilation instructions in the Directions.
Action required: Update internal policies and reporting templates to reflect the changes effective from November 28, 2025.
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.

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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=13066&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.