The Reserve Bank of India has issued new IRACP directions for banks covering income recognition on stressed assets. These changes, announced on July 16, 2026, will take effect from October 1, 2026. They directly impact how commercial banks account for income from Specified Non-Financial Assets (SNFAs).
Key Details of the IRACP Amendment
The RBI has inserted new clauses — 139C and 139D — into Chapter V of its Income Recognition guidelines. Under Clause 139C, banks cannot recognise accrued but unrealised interest or charges from an extinguished exposure as income when they acquire an SNFA. This rule closes a loophole that previously allowed banks to book income that had not actually been received.
Additionally, if a bank has already recognised such income for any SNFA still on its books as of September 30, 2026, it must reverse that entry through its Profit and Loss account. However, this reversal must happen no later than September 30, 2027, covering only the amount still unrealised on that date.
Clause 139D further clarifies 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, any expenses for maintaining an SNFA should be recognised in the year they are incurred.
What This Means for Banks and Customers
These updated IRACP directions for banks aim to bring greater transparency to how lenders report earnings from stressed assets. As a result, banks will need to review their current SNFA portfolios carefully before the September 2026 deadline. Therefore, finance teams should begin auditing unrealised income entries now to avoid last-minute reversals.
The move aligns with the RBI’s broader push for prudent accounting practices across the banking sector. Meanwhile, these changes accompany the separately issued Resolution of Stressed Assets Third Amendment Directions, also dated July 16, 2026. Together, they form a comprehensive update to how banks handle non-performing and stressed exposures.
For example, a bank that acquired a property as part of a loan settlement and booked unpaid interest as income will now need to reverse that entry. This directly strengthens the accuracy of bank balance sheets, ultimately benefiting depositors and investors alike.
The amendment was issued under Sections 21 and 35A of the Banking Regulation Act, 1949, by Chief General Manager Vaibhav Chaturvedi.
Source: RBI Notifications
