The Reserve Bank of India has issued new rural co-operative bank IRACP rules through its Third Amendment Directions, 2026. These changes specifically address how banks must handle income from Specified Non-Financial Assets (SNFAs). The amendment takes effect from October 1, 2026.
Key Changes to Income Recognition Rules
Under the updated rural co-operative bank IRACP rules, banks can no longer recognise accrued but unrealised interest or charges as income when they acquire an SNFA. This applies to income earned before the acquisition date. Therefore, any such income already booked must now be reversed through the Profit and Loss account.
Banks that have already recognised such income for SNFAs outstanding as on September 30, 2026, must reverse it by September 30, 2027. However, only the portion remaining unrealised on that date needs reversal. This gives banks a one-year transition window to comply.
Additionally, any income actually received from an SNFA must now be classified as non-interest or other income. Banks must record it in the financial year they realise it. Similarly, expenses for maintaining an SNFA must be booked in the year they are incurred.
What This Means for Rural Co-operative Banks
These changes align the rural co-operative bank IRACP rules more closely with the RBI’s broader stressed asset resolution framework. The RBI issued these directions alongside its Rural Co-operative Banks Resolution of Stressed Assets Second Amendment Directions, also dated July 16, 2026. As a result, both sets of rules now work together more coherently.
For smaller rural co-operative banks, the practical impact is significant. They must review their books for any unrealised interest booked against SNFAs. Meanwhile, accounting teams need to update their income classification procedures before October 1, 2026.
The RBI exercised powers under Sections 21, 35A, and 56 of the Banking Regulation Act, 1949, to issue these directions. Chief General Manager Vaibhav Chaturvedi signed the notification on July 16, 2026. For example, banks with stressed agricultural loan portfolios are likely to feel the most immediate impact.
Overall, these updates push rural co-operative banks toward more conservative and transparent income recognition practices. This strengthens the financial health of India’s rural banking sector in the long term.
Read the official RBI notification here.
Source: RBI Notifications
