RBI Update - Reserve Bank of India (Small Finance Banks – Income Recognition, Asset Classification and Provisioning) Second Amendment Directions, 2026

The Reserve Bank of India has issued the Reserve Bank of India (Small Finance Banks – Income Recognition, Asset Classification and Provisioning) Second Amendment Directions, 2026, effective October 1, 2026, amending the Reserve Bank of India (Small Finance Banks – Income Recognition, Asset Classification and Provisioning) Directions. The amendment inserts provisions on Income Recognition in case of acquisition of Specified Non-Financial Assets (SNFA), providing that any accrued but unrealised interest or charges relating to the extinguished exposure prior to acquisition of an SNFA shall not be recognised as income. It further requires Small Finance Banks to reverse, through the Profit and Loss account by September 30, 2027, any such unrealised income recognised on SNFAs outstanding as on September 30, 2026. Additionally, the amendment clarifies that income realised from an SNFA shall be recognised as non-interest/other income in the financial year of realisation, while expenses incurred towards its upkeep shall be recognised in the financial year in which they are incurred.