RBI Revises IRACP Norms for NBFCs and Co-op Banks

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  • Last Updated on 17 February, 2026

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RBI IRACP amendment

RBI/2025-26/208 DOR.STR.REC.411/21-04-048/2025-26; Dated: 13.02.

The Reserve Bank of India (RBI) has issued Amendment Directions relating to Income Recognition, Asset Classification and Provisioning (IRACP) applicable to Rural Co-operative Banks and Non-Banking Financial Companies (NBFCs).

The amendments aim to reinforce prudential discipline and ensure consistency in recognition of income and classification of loan assets.

1. Income Recognition Based on Record of Recovery

The revised directions reiterate that:

  • The policy on income recognition must be strictly based on the record of recovery
  • Recognition of income should reflect actual realisation rather than notional accrual

This strengthens prudential accounting practices and prevents overstatement of income.

2. Accrual-Based Recognition for Standard Assets

Under the amended framework:

  • Banks and NBFCs may recognise income on an accrual basis
  • Only for credit facilities classified as ‘Standard’ assets

Once a loan account ceases to be standard, accrual-based income recognition is no longer permitted.

3. Treatment of Non-Performing Assets (NPAs)

For loan accounts classified as Non-Performing Assets (NPAs):

  • Income recognition must follow prudential norms linked to actual recovery
  • Accrued income cannot be recognised unless realised

This ensures accurate reflection of asset quality and financial performance.

4. Upgradation of NPAs to Standard Category

The amendment clarifies that:

  • NPA accounts may be upgraded to ‘Standard’ assets
  • Only when the borrower pays entire arrears of interest and principal

Partial repayment or restructuring without full clearance of overdue amounts will not qualify for upgradation.

5. Regulatory Objective

The amended IRACP directions aim to:

  • Strengthen asset quality recognition
  • Ensure conservative and realistic income recognition
  • Improve transparency in financial statements
  • Align prudential norms across regulated entities

6. Key Takeaway

RBI’s amended IRACP directions reinforce recovery-based income recognition and strict conditions for upgradation of NPAs, requiring full repayment of overdue principal and interest before an account can be reclassified as a standard asset.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied