RBI Bars Banks and NBFCs from Recognising Unrealised Interest on Acquired Stressed Assets

The Reserve Bank of India has finalised prudential requirements governing the accounting treatment of specified non-financial assets acquired by regulated entities while resolving stressed loan exposures. The revised framework will take effect on October 1, 2026.

The directions apply to commercial banks, small finance banks and non-banking financial companies that acquire immovable or other specified non-financial assets in settlement of claims against defaulting borrowers.

Under the amended norms, interest and charges accrued on the extinguished loan exposure for periods preceding the acquisition of an SNFA cannot be recorded as income unless actually realised. This requirement is intended to prevent regulated entities from reporting unrealised amounts connected with stressed loans as earnings.

Where such unrealised income has already been recognised against an SNFA remaining in the books as of September 30, 2026, the concerned entity must reverse the outstanding unrealised amount through its Profit and Loss account by September 30, 2027.

The RBI has also prescribed the accounting treatment for subsequent receipts and expenses associated with these assets. Income generated from an SNFA must be reported as non-interest or other income in the financial year in which it is received. Expenses incurred for maintaining or preserving the asset must similarly be charged to the income statement in the year they arise.

The revised provisions have been incorporated into the Income Recognition, Asset Classification and Provisioning framework applicable to commercial banks, small finance banks and NBFCs. They follow amendments to the Resolution of Stressed Assets Directions, 2026, and were finalised after considering feedback on the draft directions released on May 5, 2026.

The framework seeks to establish consistent prudential and accounting practices across regulated entities. It ensures that financial statements reflect only income actually realised from acquired non-financial assets, while excluding unrealised interest and charges associated with the original stressed exposure. CA Sansaar