RBI closes accounting loophole for small finance banks on stressed assets
Small finance banks must reverse any unrealised income on specified non-financial assets by Sept 2027, with future income booked only on realisation.
What changed
- Small finance banks cannot recognise accrued but unrealised interest on SNFA acquired under stressed asset resolution
- Any already-recognised such income must be reversed through P&L by Sept 30, 2027
- Income from SNFA to be recognised as non-interest income only when realised
The read
RBI has closed a loophole that allowed banks to book income from bad assets prematurely. From October 1, 2026, small finance banks cannot recognise any accrued but unrealised interest or charges on specified non-financial assets acquired under stressed asset resolution. Any such income already on the books must be reversed through the profit and loss account by September 30, 2027. Thereafter, income from SNFA must be recognised as 'non-interest / other income' only upon realisation. This aligns accounting with economic reality. The move is likely to hit near-term reported profits for banks that had booked such income, but it strengthens balance sheet quality over time.
Key numbers
- Effective date: Oct 1, 2026
- Reversal deadline: Sept 30, 2027
Primary source: rbi.org.in