The Reserve Bank of India has issued the Local Area Banks — Income Recognition, Asset Classification and Provisioning (IRACP) Amendment Directions, 2026, aligning prudential norms with its updated stressed asset resolution framework for calamity-affected borrowers. The amendment permits borrower accounts classified as “Standard” to retain or regain such status upon implementation of a resolution plan, even if they temporarily slipped into NPA due to a calamity. Accounts undergoing repeated restructuring may also continue as “Standard,” subject to compliance. To ensure prudence, banks must maintain additional specific provisioning of 5% of outstanding debt for each restructuring instance, capped at 100%, with provisions eligible for reversal upon satisfactory repayment performance or after a defined period for certain facilities. Further, interest income is to be recognized on an accrual basis for resolved accounts and on a cash basis for repeatedly restructured accounts. Effective July 1, 2026, the amendment balances borrower relief with risk discipline.
Reserve Bank of India
RBI/2026-27/53
DOR.STR.REC.42/21-04-048/2026-27 | Dated: April 29, 2026
Reserve Bank of India (Local Area Banks — Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026
Please refer to Reserve Bank of India (Local Area Banks — Resolution of Stressed Assets) Amendment Directions, 2026 dated April 29, 2026.
2. Consequent to the aforesaid Amendment Directions, in exercise of the powers conferred by the sections 21 and 35A of the Banking Regulation Act, 1949 and all other laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified.
3. These Amendment Directions modify the Directions as under:
i. Paragraph 48A and 48B shall be inserted as under:
48A. If a resolution plan is implemented in adherence to the provisions of Chapter IV-A of Reserve Bank of India (Local Area Banks — Resolution of Stressed Assets) Directions, 2025 dated November 28, 2025, borrower accounts which are classified as ‘Standard’ may be retained as such upon implementation. Borrower accounts which may have slipped into NPA between the date of occurrence of the calamity and implementation of the resolution plan, shall be upgraded as ‘Standard’, upon implementation of the resolution plan.
Provided that after implementation of the resolution plan, the subsequent asset classification shall be governed by the criteria laid out in these Directions.
48B. Accounts which are restructured under paragraph 31J to 31R of the Reserve Bank of India (Local Area Banks — Resolution of Stressed Assets) Directions, 2025 dated November 28, 2025, where a subsequent restructuring is necessitated under the provisions of Chapter IV-A of the afore-mentioned Directions, shall continue to be classified as ‘Standard’.
ii. The following shall be inserted in Chapter IV – Provisioning Norms
Bl. Additional specific provisioning in case of resolution plan implemented under Chapter IV-A of the Reserve Bank of India (Local Area Banks — Resolution of Stressed Assets) Directions, 2025
68A. A bank shall make an additional specific provision of five percent of the outstanding debt in respect of borrowers, for whom a resolution plan has been implemented in terms of Chapter IV-A of the Reserve Bank of India (Local Area Banks — Resolution of Stressed Assets) Directions, 2025. The additional specific provisions shall be over and above the applicable prudential provisions subject to a ceiling of hundred per cent.
68B. For accounts where repeated restructuring is necessitated in terms of Chapter IV-A of the Reserve Bank of India (Local Area Banks — Resolution of Stressed Assets) Directions, 2025, a bank shall make additional specific provisioning of five per cent of the outstanding debt for each instance of restructuring made under the afore-mentioned Directions. This additional specific provisioning shall be over and above the applicable prudential provisions subject to a ceiling of hundred per cent.
68C. The additional specific provisions maintained in terms of paragraph 68A and 688 above may be written back upon the borrower paying at least 20% of the outstanding debt with the bank, without slipping into NPA post implementation of the restructuring, and without being subjected to another restructuring.
68D. If the outstanding debt post-restructuring is only in the form of non-fund-based facilities or facilities in the nature of cash credit / overdraft, the additional specific provisions made in terms of paragraph 68A and 688 above can be reversed after one year, post implementation of the restructuring, provided the borrower was not in default at any point of time during the period concerned. In case the borrower defaults during the above period, the conditions for reversal of additional specific provisions, mentioned above, shall be tested from the date of rectification of default.
iii. The following shall be inserted in part E, Chapter V — Income Recognition: 119A. Interest income recognition in respect of borrower accounts where resolution plan has been implemented in terms of Chapter IV-A of the Reserve Bank of India (Local Area Banks — Resolution of Stressed Assets) Directions, 2025 dated November 28, 2025, shall be on accrual basis.
119B. For accounts specified at paragraph 488 of these Directions, interest income shall be recognized on cash basis.
4. The above amendment shall come into force with effect from July 1, 2026.
(Vaibhav Chaturvedi)
Chief General Manager
