What changed
RBI issued the Reserve Bank of India (Rural Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025, effective immediately, to introduce prudential norms for income recognition, asset classification, and provisioning for rural co-operative banks, aiming for greater consistency and transparency in published accounts.
What it means for you
These directions require rural co-operative banks to follow specific norms for classifying assets as non-performing, provisioning for losses, and recognizing income, which aligns with international practices and the Narasimham Committee recommendations to enhance the credit system.
What you must do
- Rural co-operative banks must follow the requirements of the State Co-operative Societies Acts and/or rules made thereunder, or other statutory enactments, if they are more stringent than those prescribed in these directions.
- Banks must classify assets as per the norms specified in Chapter III of the directions.
- Banks must provide for potential losses as per the provisioning requirements in Chapter IV.
- Banks must recognize income accurately as per the income recognition norms in Chapter V.
Who it affects
Rural Co-operative Banks, State Co-operative Banks, Central Co-operative Banks
What is the purpose of these directions?
The purpose is to introduce prudential norms for income recognition, asset classification, and provisioning for rural co-operative banks to move towards greater consistency and transparency in published accounts, as per the Narasimham Committee recommendations.
What are the key changes introduced by these directions?
The directions set out specific norms for asset classification (including definitions of NPA, out of order, overdue), provisioning requirements, and income recognition for rural co-operative banks, effective from November 28, 2025.
What are the implications of these directions for rural co-operative banks?
Banks must comply with the detailed instructions on due dates, SMA/NPA classification, and provisioning, and must follow more stringent state laws if applicable, to ensure accurate financial reporting.