The Reserve Bank of India has issued new NBFC income recognition rules that change how non-banking financial companies account for income from stressed assets. These Third Amendment Directions, effective October 1, 2026, follow closely on the heels of the RBI’s Resolution of Stressed Assets Second Amendment Directions issued the same day — July 16, 2026.
Key Changes to NBFC Income Recognition
Under the new rules, NBFCs must stop recognising accrued but unrealised interest and charges from extinguished exposures as income upon acquiring a Specified Non-Financial Asset (SNFA). This is a significant shift in accounting practice. Additionally, any such income already recognised for SNFAs outstanding as of September 30, 2026, must be reversed through the Profit and Loss account. NBFCs have until September 30, 2027, to complete this reversal.
The RBI has also clarified how future income from SNFAs should be treated. Any income received from an SNFA must be recorded as ‘non-interest or other income’ only in the financial year it is actually realised. Similarly, expenses related to maintaining an SNFA must be booked in the year they are incurred. Therefore, the matching principle now applies strictly to these assets.
What This Means for NBFCs and Borrowers
These directions apply broadly across the NBFC sector. They cover entities regulated under the RBI Act, 1934, the National Housing Bank Act, 1987, and the Factoring Regulation Act, 2011. As a result, housing finance companies and factoring entities must also align their income recognition practices with the new framework.
For NBFCs, the immediate impact is a potential reduction in reported income. However, the move promotes greater transparency and more accurate financial reporting. Investors and depositors, meanwhile, will benefit from a clearer picture of an NBFC’s true financial health. The RBI has stated that these changes are necessary and expedient in the public interest.
Effective Date and Compliance Timeline
The amendment comes into force on October 1, 2026. NBFCs should therefore begin reviewing their books now to identify any unrealised income already recognised against SNFAs. Compliance teams must plan the P&L reversal well before the September 2027 deadline. For example, institutions with large stressed-asset portfolios may need significant internal adjustments.
The full circular, bearing reference DOR.STR.REC.162/21-04-048/2026-27, is available on the RBI’s official website.
Source: RBI Notifications
