Reserve Bank of India (Regional Rural Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 (updated as on July 01, 2026)

1. Bad loan norms for RRBs

This paper sets when a loan turns bad for regional rural banks.

2. Start date

These Directions came into effect on the day RBI issued them.

3. Who is covered

These Directions apply to every regional rural bank.

4. Restructured accounts follow that book

Restructured accounts follow the stressed assets rules for income and grading.

5. Out of order covers overdrafts

The out of order test covers every overdraft product, business or not.

6. Overdue means unpaid on time

Any sum not paid on its due date is overdue.

7. What the cover ratio shows

The provision cover ratio is provisions against gross bad loans.

8. Security must be tangible

Security means a tangible charge; a guarantee or comfort letter does not count.

9. Short crops defined by exclusion

A short duration crop is any crop that is not a long duration crop.

10. Enterprise sizes defined elsewhere

Micro, small and medium enterprise are defined by the MSME credit circular.

1. Three months for stock

A stock statement used for drawing power must not be older than three months.

2. Older than that is irregular

An account run on a stock statement older than three months is irregular.

3. Three months to renew

A regular or ad hoc limit must be reviewed within three months of its due date.

4. Six months is too long

A delay beyond six months in renewal is not acceptable as a discipline.

5. Thirty days makes SMA-1

An account overdue for thirty days is tagged SMA-1 at that day's run.

BankPulse example. An instalment falls due on 1 September and is not paid. The account is tagged SMA-1 when 30 days of continuous overdue are complete. That is at the day-end run on 1 October.

6. Sixty days makes SMA-2

An account overdue past SMA-1 is tagged SMA-2 at the next month's day-end run.

7. Name the repayment start

Where there is a moratorium, the loan agreement must name the exact repayment start date.

8. Drawings need current assets

Drawings on a working capital account must be covered by current assets.

9. Flag at day end

An account must be flagged overdue in the day-end run for its due date.

10. Disclose in the notes

The position must be shown in the notes to the accounts.

11. The calendar date rules

The SMA or bad loan date is the calendar date of the day-end run.

1. Keep logs three years

Those logs must be kept for at least three years and not be tampered with.

2. No back-end changes

Data must not be changed from the back end of the database.

3. Fit schedule to cash flow

Repayment dates must be set from the borrower's real cash flow.

4. Prove a real cure

Where an account is said to be cured, satisfactory evidence must go to the auditors.

5. Every account in the system

Every borrower account of any size must sit in the automated grading system.

6. Investments too

Investments must also be covered by the system.

7. Rules built into the system

The grading rules must be set inside the system to match the regulation.

8. System works out provisions

The provision needed must be worked out by the system on pre-set rules.

9. Income reversal by system

Income to be reversed on an impaired asset must come from the system, not by hand.

10. Update at day end

The grading status must be updated as part of the day-end run.

11. A report on demand

A grading report with real dates must be producible at any moment.

12. No manual override

There must be no hand override of the system's grading.

13. Board sets who may override

The power to allow an exception must come from the Board approved policy.

14. Every override is audited

Every override must leave an audit trail and face the concurrent and statutory auditors.

15. Reports to the Audit Committee

Detailed override reports must go to the Audit Committee regularly.

16. Log every override

Logs of every override must hold the time, the reason and who did it.

17. Keep the rules current

The system's business logic must be kept current with the regulation.

18. One customer, all facilities

The straight through run must take in every facility and holding of one customer.

19. Status must reach the core

Where grading runs outside the core system, the status must flow back into it.

20. Front end only, once cleared

A data change must come through the application itself, after clearance.

21. Keep the transaction trail

Audit trails must capture the fields needed to trace a transaction later.

22. All fields in the core

Every field needed to spot a bad loan must sit in the core system.

23. A test copy for supervisors

A test copy of the system must be open to supervisors on an onsite visit.

24. Write an operating procedure

A standard operating procedure for system grading must be written for the staff.

25. Standard means no problem

A standard asset shows no problem and carries no more than normal risk.

26. Borrower-level classification

If one loan turns bad, all the borrower's facilities are classified as NPA.

27. Security does not save it

Security or the borrower's net worth does not stop an advance being called bad.

28. Income is not exempt

That exemption does not extend to how income on it is taken.

29. State guarantee does not save

A State guaranteed advance still turns bad once dues stay overdue.

30. Consortium goes by own record

In a consortium each member grades the account on its own record of recovery.

31. Plan sets the later grade

After a resolution plan is put in place, later grading follows these Directions.

32. Check before you enter

Data may be entered only after the user is checked and cleared.

1. Writing off loss assets

Banks should write off loss assets completely.

1. Older rules cancelled

This document cancels the older income recognition and provisioning rules for Commercial Banks.

2. Old cases continue

Penalties and legal cases already started under the old rules still continue.