Reserve Bank of India amends small finance bank asset classification and provisioning rules for Chapter VI-A resolutions with 5 percent additional provisions

The Reserve Bank of India has issued amendments to the income recognition, asset classification and provisioning rules for small finance banks following the same-day changes to the Resolution of Stressed Assets Directions. The amendments allow borrower accounts that are classified as Standard when a resolution plan is implemented under Chapter VI-A of the 2025 Directions to remain so, and permit accounts that slipped into non-performing asset (NPA) status between the occurrence of a natural calamity and implementation of the plan to be upgraded to Standard on implementation. Accounts already restructured under paragraphs 124I to 124Q that require a further restructuring under Chapter VI-A will also continue to be classified as Standard. Banks must hold an additional specific provision equal to 5 percent of outstanding debt for each borrower resolved under Chapter VI-A, over and above applicable prudential provisions and subject to an overall ceiling of 100 percent. The same 5 percent add-on applies for each subsequent restructuring under that chapter. These additional provisions may be written back once the borrower has repaid at least 20 percent of the outstanding debt without slipping into NPA after restructuring and without another restructuring, while exposures consisting only of non-fund-based facilities or cash credit or overdraft can be reversed after one year if no default occurs. Interest income on Chapter VI-A resolution accounts will be recognized on an accrual basis, but cash basis recognition will apply to the repeatedly restructured accounts covered by paragraph 58B. The amendments take effect from July 1, 2026.