Reserve Bank of India (Non-Operative Financial Holding Companies) Amendment Directions, 2026

Posted On - 27 May, 2026 • By - King Stubb & Kasiva

The Reserve Bank of India has issued a series of amendment directions in 2026, consequent to the issuance of the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026. These amendments, effective April 1, 2027, update multiple regulatory frameworks to align with the revised prudential standards.

Non-Operative Financial Holding Companies – Amendment Directions, 2026

RBI has amended the Non-Operative Financial Holding Companies Directions, 2025[1] consequent to the issuance of the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026, effective April 1, 2027.

The amendment revises paragraph 20 to update references relating to prudential norms on income recognition, asset classification, and provisioning pertaining to advances.

The amendment ensures consistency and alignment across the regulatory framework by requiring Non-Operative Financial Holding Companies to comply with the updated prudential directions.

Resolution of Stressed Assets – Amendment Directions, 2026

This notification[2] issued by RBI amends the Commercial Banks – Resolution of Stressed Assets Directions, 2025, consequent to the issuance of the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026, effective from April 01, 2027.

Additional Indicators of Significant Increase in Credit Risk

The amendments introduce four additional indicators of significant increase in credit risk, including:

substantial downgrade in external or internal credit ratings;
significant changes in collateral valuation;
delays in payment of fees or charges; and
anticipated changes in loan documentation.

Several provisions relating to provisioning, restructuring, insolvency resolution, project loans, natural calamity restructuring, and DCCO deferment have also been updated to align with the revised prudential framework. Paragraph 162 has been deleted.

These amendments strengthen the early warning framework for identification of stressed assets and support more proactive resolution strategies by commercial banks.

Treatment of Wilful Defaulters and Large Defaulters – Amendment Directions, 2026

RBI has amended the Commercial Banks – Treatment of Wilful Defaulters and Large Defaulters Directions, 2025[3] to align the framework with the revised Asset Classification, Provisioning and Income Recognition (“APIR”) Directions, 2026.

Paragraph 6(2) now clarifies that where wilful default is identified during internal preliminary screening, the bank must complete the process of classifying the borrower as a wilful defaulter within six months from the date on which the account is classified as an NPA under the revised APIR Directions.

The amendment promotes consistency within the regulatory framework and reinforces timelines for timely identification and declaration of wilful defaulters.

Urban Cooperative Banks – Resolution of Stressed Assets Amendment Directions, 2026

This notification[4] issued by the Reserve Bank of India amends the Urban Cooperative Banks – Resolution of Stressed Assets Directions, 2025, consequent to the issuance of the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026, effective from April 01, 2027.

The amendment modifies the Explanation to paragraph 5(4)(v) to clarify that for the purposes of this direction, “financial difficulty” shall have the same meaning as specified in the Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025.

The amendment brings greater definitional clarity and consistency to the Resolution of Stressed Assets framework for Urban Cooperative Banks.

Prudential Norms on Capital Adequacy – Fourth Amendment Directions, 2026

This notification[5] issued by the Reserve Bank of India amends the Commercial Banks – Prudential Norms on Capital Adequacy Directions, 2025, consequent to the issuance of the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026, effective from April 01, 2027.

Stage Classification and Tier 2 Capital Treatment

The amendments introduce paragraph 31A defining Stage 1, Stage 2, and Stage 3 assets under the revised framework. The amendments further clarify:

general provisions on Stage 1 and Stage 2 assets and excess provisions arising from sale of NPAs may qualify for inclusion in Tier 2 capital, subject to prescribed limits; and
specific provisions relating to Stage 3 exposures, diminution in fair value of restructured advances, and depreciation in investment values shall not qualify for such inclusion.

Certain provisions, including paragraph 130(2) and the note to paragraph 223, have been deleted. These amendments align capital adequacy computations with the revised provisioning and asset classification framework while enhancing consistency in regulatory capital treatment.

Credit Cards and Debit Cards – Amendment Directions, 2026

RBI has amended[6] the Commercial Banks – Credit Cards and Debit Cards: Issuance and Conduct Directions, 2025 to align them with the revised APIR Directions.

The amendment to paragraph 23(5) clarifies that:

a credit card account may be reported as “past due” to credit information companies only if it remains overdue for more than three days; and
penal charges may only be levied after such period.

The computation of days past due and related charges must now follow the methodology prescribed under the APIR Directions, 2026. Further, late payment charges can only be levied on the overdue amount and not on the total amount due.

The amendment brings greater transparency and fairness to the treatment of overdue credit card accounts.

Transfer and Distribution of Credit Risk – Amendment Directions, 2026

This notification[7] issued by the Reserve Bank of India amends the Commercial Banks – Transfer and Distribution of Credit Risk Directions, 2025 and is effective from April 01, 2027.

Key Amendments

Key amendments include:

insertion of paragraph 52A requiring permitted transferees to recognise and measure acquired loans in accordance with the APIR Directions, 2026;
deletion of paragraph 53;
insertion of paragraph 70A classifying stressed loans acquired by banks as Purchased or Originated Credit-Impaired (“POCI”) financial assets; and
deletion of paragraph 73.

The amendments further clarify that where stressed loans are transferred to Asset Reconstruction Companies (“ARCs”) below Net Book Value, the shortfall must be debited to the profit and loss account in the year of transfer.

The revised framework enhances consistency, transparency, and accuracy in provisioning and credit risk reporting relating to transferred and acquired loan portfolios.

Classification, Valuation, and Operation of Investment Portfolio – Amendment Directions, 2026

This notification[8] issued by the Reserve Bank of India amends the Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio Directions, 2025, consequent to the issuance of the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026, effective from April 01, 2027.

New Concepts Introduced

The amendments introduce several new concepts including:

Amortised Cost;
Effective Interest Rate (“EIR”);
Expected Credit Loss (“ECL”);
Gross Carrying Amount;
Loss Allowance;
Stage 1, Stage 2, and Stage 3 classification; and
Transaction Cost.

Measurement and Accounting Treatment

All investments must now be measured at fair value upon initial recognition. Held-to-Maturity (“HTM”) investments are subsequently measured at amortised cost using the EIR method, while Available-for-Sale (“AFS”) investments must be fair valued at least quarterly.

The framework also introduces revised accounting treatment for gains and losses on Stage 1 and Stage 2 AFS investments through the AFS Reserve rather than the profit and loss account.

These amendments represent a significant shift toward globally aligned accounting and provisioning standards, enhancing transparency and accuracy in financial reporting by commercial banks.

Asset Liability Management – Amendment Directions, 2026

This notification[9] issued by the Reserve Bank of India amends the Commercial Banks – Asset Liability Management Directions, 2025, consequent to the issuance of the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026, effective from April 01, 2027.

The amendment revises the Explanation to paragraph 237(5) to provide that loan classification for asset liability management purposes shall follow the revised APIR framework.

This amendment ensures regulatory consistency across prudential and risk management frameworks applicable to commercial banks.

Income Recognition, Asset Classification and Provisioning – Repeal Directions, 2026

This notification[10] issued by the RBI repeals the Commercial Banks – Income Recognition, Asset Classification and Provisioning Directions, 2025, with effect from April 01, 2027, replacing them with the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026 issued on April 27, 2026.

The repeal contains a standard savings clause preserving the validity of approvals, liabilities, penalties, investigations, proceedings, and actions initiated under the earlier framework.

The repeal formally transitions the banking sector to the revised APIR framework while preserving continuity for existing regulatory and enforcement actions.

Asset Classification, Provisioning and Income Recognition Directions, 2026

RBI has issued the Commercial Banks – Asset Classification, Provisioning and Income Recognition Directions, 2026[11] to strengthen credit risk management, improve transparency, and align Indian banking regulation with international prudential standards. The Directions will come into force on April 1, 2027.

The revised framework introduces a forward-looking Expected Credit Loss (“ECL”) model alongside the existing NPA regime. A three-stage classification system based on changes in credit risk has been adopted.

Key Requirements for Banks

Banks are now required to:

apply the Effective Interest Rate (“EIR”) methodology;
use probability-based credit loss models; and
incorporate macroeconomic variables into provisioning calculations.

The Directions retain the existing 90-day past due norm for NPA classification and continue borrower-level classification principles, while also prescribing specific treatment for agricultural advances, guaranteed exposures, and consortium lending arrangements.

The revised framework marks a major transition in India’s banking regulation toward globally harmonised credit impairment and provisioning standards.