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Covering Resolution of Stressed Assets, Credit Risk Management, Loan Classification, Asset Classification, Credit Risk. Explore RBI’s pivotal updates on Resolution of Stressed Assets, Credit Risk Management, Loan and Asset Classification, and Capital Adequacy norms shaping commercial banking practices.
Regulatory news, updates, and insights for India presented by the Carver Agents team
Welcome to Carver's India Regulatory Updates for May 04, 2026.
The Reserve Bank of India has issued a series of significant amendments and new directions impacting commercial banks, effective from April 1, 2027, unless otherwise specified.
First, the Reserve Bank of India released the Commercial Banks – Financial Statements: Presentation and Disclosures – Seventh Amendment Directions, 2026. These amendments modify instructions for compiling balance sheets and profit and loss accounts. Key changes include separate disclosure of provisions for Stage 1 and Stage 2 assets under 'Others' in Schedule 5 of the Balance Sheet, computation of interest on advances and bills as per the 2026 Asset Classification Directions, and detailed disclosure of income from investment portfolios.
Next, the Reserve Bank of India issued the Commercial Banks – Credit Risk Management – Second Amendment Directions, 2026. This update modifies paragraphs 51, 56, 58, and 92 of the Directions. Banks are permitted to use the Export Credit Guarantee Corporation of India’s seven-category country classification system until they adopt internal rating systems. Banks must assess and monitor Unhedged Foreign Currency Exposure and maintain adequate capital. Incremental capital requirements apply based on potential loss/EBID thresholds with a 25 percentage point risk weight increase for exposures exceeding 75%.
The Reserve Bank of India also published the Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio – Amendment Directions, 2026. This includes new definitions such as amortised cost, effective interest rate, and expected credit loss. The Directions modify provisions on measurement, classification, valuation, income recognition, and provisioning of investments. Banks must measure investments at fair value upon initial recognition, with held-to-maturity securities measured at amortised cost using the Effective Interest Rate method and not marked to market thereafter.
Further, the Reserve Bank of India introduced the Commercial Banks – Asset Classification, Provisioning and Income Recognition Directions, 2026. This framework introduces an Expected Credit Loss-based asset classification and provisioning system, adopts the Effective Interest Rate method, and repeals the previous 2025 Directions effective April 1, 2027. The new Directions implement a staging framework for asset classification while retaining existing Non-Performing Asset norms and promote a forward-looking provisioning approach.
In addition, the Reserve Bank of India amended the Commercial Banks – Credit Facilities – Second Amendment Directions, 2026. Modifications to paragraphs 25(1), 84, 132, and deletion of paragraph 172(3)(ii) align asset classification, provisioning, and risk weight requirements with the 2026 Directions. Individual loan assets must be classified per the 2026 Asset Classification Directions. Project finance accounts may be classified as Non-Performing Assets before the actual Date of Commencement of Commercial Operations based on recovery records. Exposures must attract risk weights and provisioning as prescribed.
The Reserve Bank of India also issued the Commercial Banks – Asset Liability Management – Amendment Directions, 2026. Effective April 1, 2027, loan classification must follow the 2026 Directions on Asset Classification, Provisioning and Income Recognition.
Regarding stressed assets, the Reserve Bank of India published the Commercial Banks – Resolution of Stressed Assets – Amendment Directions, 2026. New sub-paragraphs address credit rating downgrades, collateral value changes, fee payment delays, and loan documentation changes. Multiple paragraphs were modified to align asset classification and provisioning with the 2026 Directions, and paragraph 162 was deleted.
The Reserve Bank of India also repealed the Commercial Banks – Income Recognition, Asset Classification and Provisioning – Repeal Directions, 2026. The 2025 Directions will be repealed effective April 1, 2027, replaced by the 2026 Directions issued on April 27, 2026. Actions, approvals, penalties, and legal proceedings under the repealed Directions will continue as if not repealed.
In capital adequacy, the Reserve Bank of India issued the Commercial Banks – Prudential Norms on Capital Adequacy – Third Amendment Directions, 2026. Definitions for Stage 1, Stage 2, and Stage 3 assets were inserted. General provisions on standard assets and excess provisions from sale of Non-Performing Assets can be included in Tier 2 capital up to 1.25 percent of total credit risk-weighted assets under the standardized approach. Specific provisions on Non-Performing Assets and Stage 3 exposures are excluded from Tier 2 capital. Banks may choose to net off floating provisions from Gross Non-Performing Assets or include them as part of Tier 2 capital.
Finally, the Reserve Bank of India introduced the Commercial Banks – Capital Charge for Credit Risk – Standardised Approach Directions, 2026. These Directions prescribe risk weights and due diligence requirements for credit risk under the Standardised Approach, applicable to commercial banks except certain categories. Banks must calculate risk-weighted assets using prescribed risk weights or eligible credit rating agencies’ ratings and perform due diligence on counterparties at origination and at least annually, except for sovereign and central bank exposures. Risk weights assigned should broadly align with internal credit assessments and not fall below base risk weights from external ratings.
That wraps up today's regulatory updates. Visit carveragents.ai for more information.