The Reserve Bank of India (RBI) on November 28, 2025, issued the Reserve Bank of India (Small Finance Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025, for public comments. The aims to establish a comprehensive prudential framework governing how Small Finance Banks (SFBs) recognise income, classify assets, and make provisions for loan losses. It seeks to promote consistency, transparency, and early recognition of asset quality deterioration, aligning with global best practices and recommendations of the Narasimham Committee on financial system reforms.
The Directions set out detailed definitions and criteria for classification of advances as standard, substandard, doubtful, or loss assets, along with guidelines for recognising non-performing assets (NPAs), overdue accounts, and out-of-order conditions. SFBs must adopt objective, recovery-based income recognition policies and ensure realistic repayment schedules aligned with borrower cash flows. The further mandates periodic valuation of collateral, annual stock audits for NPAs above ₹5 crore, and detailed Board-approved policies on provisioning, external valuations, and renewal of credit limits to enhance asset quality and governance discipline.
Additionally, the prescribes robust consumer education and disclosure requirements. Banks must clearly communicate repayment terms, due dates, and potential NPA classification triggers to borrowers, and disclose asset quality and provisioning details as per the Financial Statements: Presentation and Disclosures Directions, 2025. By reinforcing prudence, accountability, and transparency, the framework aims to strengthen the resilience and credit risk management practices of SFBs.
These Directions shall come into force with immediate effect.
[Notification No. RBI/DOR/2025-26/195 DOR.STR.REC.114./21.04.048 /2025-26]
