Reserve Bank of India (Small Finance Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 (Updated as on July 01, 2026)
UR
- Applies toSmall finance banks
- StatusIn force
- RBI text changedRBI updated this document on October 01, 2026. BankPulse is re-reading it. BankPulse checked 79 points against RBI's new text on 2 October 2026. 76 stand. 3 are marked below and are being re-read.
- IssuedNov 28, 2025
- Last amendedJul 16, 2026 · 3 incorporated
- Length79 points in 5 sections · 7 min read
The four dates on this rule
- PublishedNov 28, 2025The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNov 28, 2025The day this rule starts to apply, as RBI's own text states it.
- Time to get readyNoneIt starts to apply on the day it was published.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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68 of the 79 points name no product and bind every product. All products.
Numbers to remember
| 12 months | A doubtful asset is one that has stayed substandard for 12 months. RBI Para 5(2) |
| three months | A stock statement used for drawing power must not be older than three months. RBI Para 11(2) |
| six months | A delay beyond six months in renewal is not acceptable as a discipline. RBI Para 17 |
| ₹5 crore | Property held against a bad loan of ₹5 crore or more is valued once in three years. RBI Para 19 |
| thirty days | An account overdue for thirty days is tagged SMA-1 at that day's run. RBI Para 27 |
| three years | Those logs must be kept for at least three years and not be tampered with. RBI Para 34(4) |
| 90 days | A term loan becomes an NPA if interest or principal is overdue for more than 90 days. RBI Para 38(1) |
| 180 days | An account becomes an NPA if credit limits are not reviewed within 180 days. RBI Para 38(5) |
| 1.00 per cent | Standard assets carry a general provision that varies by sector; commercial real estate carries 1.00 per cent. RBI Para 76(2) |
| 25 percent | Unsecured substandard loans need a total of 25 percent provisioning. RBI Para 82 |
| 100 percent | Provisioning on the secured part of doubtful loans rises from 25 percent to 100 percent over time. RBI Para 87 |
What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — both, or either one. RBI’s paragraph joins two things in the and-or form. One reading: Both of them apply, together. The other: Either one of them, on its own, is enough.
Chapter I. Preliminary
Must know
1. Doubtful asset definition
A doubtful asset is one that has stayed substandard for 12 months.
2. Substandard asset definition
A substandard asset is one that has been an NPA for up to 12 months.
Background
3. Bad loan norms for SFBs
This paper sets when a loan turns bad for small finance banks.
4. Start date
These Directions came into effect on the day RBI issued them.
5. Who is covered
These Directions apply to every small finance bank.
6. Restructured accounts follow that book
Restructured accounts follow the stressed assets rules for income and grading.
7. Out of order covers overdrafts
The out of order test covers every overdraft product, business or not.
8. Overdue means unpaid on time
Any sum not paid on its due date is overdue.
9. What the cover ratio shows
The provision cover ratio is provisions against gross bad loans.
10. Security must be tangible
Security means a tangible charge; a guarantee or comfort letter does not count.
11. Short crops defined by exclusion
A short duration crop is any crop that is not a long duration crop.
12. Enterprise sizes defined elsewhere
Micro, small and medium enterprise are defined by the MSME credit circular.
13. Property terms defined elsewhere
Commercial real estate and project finance take their meaning from the lending rules.
Chapter II. General Instructions
Must know
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. Value big collateral triennially
Property held against a bad loan of ₹5 crore or more is valued once in three years.
Do it
6. Board sets who may override
The power to allow an exception must come from the Board approved policy.
7. Board must act on quality
The Board must take every step to stop asset quality falling.
8. Fit schedule to cash flow
Repayment dates must be set from the borrower's real cash flow.
9. Name the repayment start
Where there is a moratorium, the loan agreement must name the exact repayment start date.
10. Drawings need current assets
Drawings on a working capital account must be covered by current assets.
11. Drawing power from stock
Drawing power must be worked out from a current stock statement.
12. Avoid repeated ad hoc renewals
Frequent ad hoc or short renewals without good reason must be avoided.
13. Disclose in the notes
The position must be shown in the notes to the accounts.
Chapter III. Asset Classification
Must know
1. 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.
2. Sixty days makes SMA-2
An account overdue past SMA-1 is tagged SMA-2 at the next month's day-end run.
3. Keep logs three years
Those logs must be kept for at least three years and not be tampered with.
4. No back-end changes
Data must not be changed from the back end of the database.
5. 90-day NPA test
A term loan becomes an NPA if interest or principal is overdue for more than 90 days.
6. 180-day review rule
An account becomes an NPA if credit limits are not reviewed within 180 days.
7. Credit card NPAs
A credit card account becomes an NPA if the minimum due is unpaid for 90 days.
Do it
8. Flag at day end
An account must be flagged overdue in the day-end run for its due date.
9. Objective tests only
Bad loan grading must follow objective tests so the norms are applied alike.
10. Every account in the system
Every borrower account of any size must sit in the automated grading system.
11. Investments too
Investments must also be covered by the system.
12. Rules built into the system
The grading rules must be set inside the system to match the regulation.
13. System works out provisions
The provision needed must be worked out by the system on pre-set rules.
14. Income reversal by system
Income to be reversed on an impaired asset must come from the system, not by hand.
15. Update at day end
The grading status must be updated as part of the day-end run.
16. A report on demand
A grading report with real dates must be producible at any moment.
17. No manual override
There must be no hand override of the system's grading.
18. Every override is audited
Every override must leave an audit trail and face the concurrent and statutory auditors.
19. Reports to the Audit Committee
Detailed override reports must go to the Audit Committee regularly.
20. Log every override
Logs of every override must hold the time, the reason and who did it.
21. Keep the rules current
The system's business logic must be kept current with the regulation.
22. Store data whole
Data entered must be captured and stored in full, with nothing cut off.
23. Map a shared login
A generic login may be used only rarely and must be mapped to a named employee.
24. One customer, all facilities
The straight through run must take in every facility and holding of one customer.
25. Status must reach the core
Where grading runs outside the core system, the status must flow back into it.
26. Front end only, once cleared
A data change must come through the application itself, after clearance.
27. Keep the transaction trail
Audit trails must capture the fields needed to trace a transaction later.
28. Log master data changes
Changes to master data must be logged.
29. Log the administrators
Activity logs of users with administrator rights must also be kept.
30. All fields in the core
Every field needed to spot a bad loan must sit in the core system.
31. A test copy for supervisors
A test copy of the system must be open to supervisors on an onsite visit.
32. Write an operating procedure
A standard operating procedure for system grading must be written for the staff.
33. Prove a real cure
Where an account is said to be cured, satisfactory evidence must go to the auditors.
Background
34. The calendar date rules
The SMA or bad loan date is the calendar date of the day-end run.
35. Two people to override
Where an override is truly needed it takes two levels of authority.
36. Check before you enter
Data may be entered only after the user is checked and cleared.
37. Out-of-order accounts
An overdraft or cash credit account becomes an NPA if it stays 'out of order'.
38. Borrower-level classification
If one loan turns bad, all the borrower's facilities are classified as NPA.
39. Borrower-wise, not facility-wise
When one facility turns bad, every facility of that borrower turns bad.
40. Security does not save it
Security or the borrower's net worth does not stop an advance being called bad.
41. Letter of credit bills apart
A bill discounted under a letter of credit need not turn bad with the rest.
42. Derivative dues pull the rest
Where a derivative overdue turns bad, every funded facility of that client turns bad.
43. Consortium goes by own record
In a consortium each member grades the account on its own record of recovery.
44. State guarantee does not save
A State guaranteed advance still turns bad once dues stay overdue.
45. Plan sets the later grade
After a resolution plan is put in place, later grading follows these Directions.
Chapter IV. Provisioning Norms
Must know
1. Provision varies by sector
Standard assets carry a general provision that varies by sector; commercial real estate carries 1.00 per cent.
2. Unsecured substandard provisioning
Unsecured substandard loans need a total of 25 percent provisioning.
3. Rising secured provisioning
Provisioning on the secured part of doubtful loans rises from 25 percent to 100 percent over time.
Do it
4. Doubtful unsecured provisioning
Banks must fully provide for the unsecured part of a doubtful asset.
5. Writing off loss assets
Banks should write off loss assets completely.
6. Full provision alternative
If a loss asset stays on the books, banks must fully provide for it.
Chapter VI. Repeal and Other Provisions
1. Older rules cancelled
This document cancels the older income recognition and provisioning rules for small finance banks.
2. Old cases continue
Penalties and legal cases already started under the old rules still continue.
How this rule has changed
The points above are the rule as it stands today, after every change listed here.
Issued on Nov 28, 2025. This is the date RBI put the rule out.
Changed on Dec 04, 2025. Takes effect From January 1, 2026..
- Old para 113 deleted. Paragraph 113 in Chapter IV on provisioning no longer applies to small finance banks.
- Amendment start date. These amendment rules apply from January 1, 2026.
Changed on Apr 29, 2026.
- Upgrade post calamity. Accounts that became NPA after the calamity can become standard again when the resolution plan is implemented.
- Post plan classification. After the plan starts, later asset class of the account will follow the main Directions.
- Ceiling on extra provision. This extra provision is over normal rules but total provision cannot be more than hundred percent.
- Ceiling on repeat provision. These extra provisions for repeat restructuring are also capped so total provision is not above hundred percent.
Changed on Jul 16, 2026.
- No old interest income. Banks must not book old unpaid interest or charges as income when they get a specified non financial asset.
- Show SNFA income correctly. Money actually received from such assets must be shown as non interest or other income in that year.
- Book SNFA expenses yearly. Costs to maintain such assets must be booked in the income statement in the year they happen.
- Start date. These amendment rules will apply from October 01, 2026.
The same subject for other kinds of institution
The same subject for other kinds of institution.
RBI income recognition and provisioning rules for all India financial institutions
RBI income recognition and provisioning rules for commercial banks
RBI income recognition and provisioning rules for local area banks
RBI income recognition and provisioning rules for regional rural banks
RBI income recognition and provisioning rules for rural co-operative banks
RBI income recognition and provisioning rules for urban co-operative banks
Other RBI rules for small finance banks
RBI compliance officer and compliance function rules for small finance banks 2026
RBI credit bureau reporting rules for small finance banks 2025
RBI credit card and debit card rules for small finance banks 2025
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