The Reserve Bank of India (RBI) on November 28, issued the Reserve Bank of India (Rural Co-operative Banks – Resolution of Stressed Assets) 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. RCBs are required to adhere to these directions, provided they do not contravene any more stringent provisions under the State Co-operative Societies Acts or other statutory enactments.
• A key provision is the emphasis on early recognition of stressed assets. RCBs are mandated to identify and classify stressed assets promptly to facilitate timely intervention. This proactive approach is intended to prevent the escalation of asset stress and ensure that resolution measures are implemented at the earliest possible stage.
• In terms of resolution mechanisms, the directions outline procedures for compromise settlements. These settlements involve negotiated arrangements with borrowers to fully settle the claims of RCBs, potentially entailing some sacrifice of the amount due from the borrower. Such settlements are designed to expedite the recovery process and reduce the burden of prolonged legal proceedings.
• Additionally, the directions address the issue of technical write-offs. RCBs are provided with guidelines on when and how to undertake technical write-offs, ensuring that such actions are carried out in a manner that does not undermine the financial health of the institution or erode credit discipline.
• The directions also provide a framework for RCBs' participation in Government Debt Relief Schemes (DRS). While acknowledging the role of DRS in providing relief to borrowers, the RBI cautions against schemes that may negatively affect credit discipline or lead to moral hazard. RCBs are advised to engage in DRS only when they align with the principles of financial discipline and are implemented with due consideration to the potential implications for the institution's financial stability.
• Furthermore, the directions stipulate that RCBs shall adhere to a model operating procedure when participating in DRS. This procedure has been shared with State Governments to ensure alignment of expectations among all stakeholders, including the Government, lenders, and borrowers.
[Notification no. - RBI/DOR/2025-26/312 DOR.STR.REC.231/21.04.048/2025-26]
