The Reserve Bank of India (RBI) on November 28, 2025, issued the Reserve Bank of India (Rural Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025.
The following has been stated namely: -
• The directions are applicable to State Co-operative Banks and Central Co-operative Banks, as defined under the National Bank for Agriculture and Rural Development Act, 1981.
• A key aspect of these directions is the classification of assets into categories such as standard, substandard, doubtful, and loss assets. This classification is based on objective criteria to ensure uniformity across institutions. For instance, an asset becomes a non-performing asset (NPA) when it ceases to generate income for the bank. Substandard assets are those NPAs that have remained for 12 months or less, while doubtful assets have remained for more than 12 months but less than 36 months. Loss assets are considered unrealisable and should be written off or fully provided for.
• Provisioning norms are aligned with the asset classification. For substandard assets, a general provision of 15% is required, with an additional 10% for unsecured exposures. Doubtful assets require provisions ranging from 25% to 100% of the secured portion, depending on the duration the asset has remained doubtful. Loss assets necessitate a 100% provision.
• Regarding income recognition, the directions stipulate that income from NPAs should not be recognized on an accrual basis. Instead, income should be booked only when it is actually received. This approach aligns with international practices and ensures that banks do not report income that is not realised.
• The directions also include provisions for the valuation of security. For NPAs with balances of Rs. 5 crore and above, banks are required to conduct annual stock audits by external agencies. Additionally, collaterals such as immovable properties should be valued once every three years by approved valuers.
• These guidelines are designed to improve the financial health of rural co-operative banks by promoting prudent financial practices and ensuring that their financial statements accurately reflect their true position.
[Notification no. - RBI/DOR/2025-26/311 DOR.STR.REC.230./21.04.048/2025-26]
