The Reserve Bank of India has issued new AIFI income recognition directions that change how All India Financial Institutions (AIFIs) account for income on Specified Non-Financial Assets (SNFAs). These Second Amendment Directions, dated July 16, 2026, take effect from October 1, 2026. Therefore, institutions must prepare for compliance well in advance.
Key Changes to AIFI Income Recognition
Under the updated rules, AIFIs must not recognise accrued but unrealised interest or charges from an extinguished exposure as income when they acquire an SNFA. This is a significant shift from earlier practice. Additionally, any such income already recognised on SNFAs outstanding as of September 30, 2026, must be reversed through the Profit and Loss account by September 30, 2027.
The new directions also clarify how ongoing SNFA income should be treated. Any income received from an SNFA must be recorded as ‘non-interest or other income’ in the year it is actually realised. Similarly, expenses for maintaining an SNFA must be charged to the income statement in the year they are incurred. This ensures a cash-realisation basis for SNFA-related accounting.
What This Means for Financial Institutions
For AIFIs, these changes demand a careful review of existing books. Institutions holding SNFAs must identify any unrealised income already booked and plan its reversal before the September 2027 deadline. As a result, this could affect reported profitability for some institutions in the short term.
However, the long-term intent is clear. The RBI aims to ensure that income reporting by AIFIs reflects genuine cash flows, not notional accruals. This move aligns SNFA accounting more closely with the principles of prudence and transparency. Meanwhile, the directions also complement the separately issued Resolution of Stressed Assets Second Amendment Directions, also dated July 16, 2026.
Institutions should therefore update their accounting policies, train relevant finance teams, and engage their auditors early. The October 2026 effective date leaves limited time for implementation. For example, systems that automatically accrue interest on acquired assets will need reconfiguration.
The directions were issued by Chief General Manager Vaibhav Chaturvedi under powers conferred by Section 45L of the Reserve Bank of India Act, 1934. Full details are available on the official RBI website via RBI Notification No. DOR.STR.REC.163/21-04-048/2026-27.
Source: RBI Notifications
