The Reserve Bank of India has issued new urban cooperative bank income rules, changing how these banks recognise income from stressed assets. The RBI released the Second Amendment Directions on July 16, 2026, and they will take effect from October 1, 2026.
Key Changes to Urban Cooperative Bank Income Rules
Under the new directions, urban cooperative banks can no longer recognise accrued but unrealised interest or charges from extinguished exposures as income. Specifically, this applies to amounts that arose before a bank acquired a Specified Non-Financial Asset (SNFA). Therefore, banks must stop booking such interest as income at the point of acquisition.
Additionally, the RBI has set a clear deadline for correction. Any such income already recognised against outstanding SNFAs as of September 30, 2026, must be reversed through the Profit and Loss account by September 30, 2027. This applies only to the amount that remains unrealised on that date. As a result, banks have roughly one year to clean up their books.
Meanwhile, the new rules also define how banks should treat income received from an SNFA going forward. Any such income must be recorded as non-interest or other income only in the financial year it is actually realised. Similarly, expenses incurred for maintaining an SNFA must be charged to the income statement in the year they occur.
What This Means for Customers and the Sector
These changes bring urban cooperative bank income rules closer to the broader prudential norms that govern commercial banks. However, urban cooperative banks have historically operated under somewhat different accounting practices. This amendment directly addresses that gap.
For depositors, the move signals stronger financial discipline at their banks. For the banks themselves, it means a potential short-term impact on reported profits. Nevertheless, cleaner income recognition will improve the long-term reliability of financial statements.
The directions flow from powers under Sections 20, 21, and 35A read with Section 56 of the Banking Regulation Act, 1949. The RBI stated that issuing these directions is necessary and expedient in the public interest. Urban cooperative banks should review their current SNFA portfolios immediately to plan for compliance before the October 2026 deadline.
Source: RBI Notifications
