RBI bars lenders from booking accrued interest when they repossess assets, forcing legacy reversals by September 2027

On 16 July 2026, the Reserve Bank of India (RBI) issued amendment Directions barring all regulated lender classes from recognising accrued but unrealised interest and charges as income when they acquire a Specified Non-financial Asset (SNFA) in satisfaction of a claim, requiring reversal through the profit and loss account of any such income on SNFAs outstanding as on 30 September 2026 by 30 September 2027, and requiring SNFA income to be recognised as other income only when realised; effective 1 October 2026.

The amendment closes the recognition of unrealised interest income at the point a lender repossesses an immovable asset. Accrued but unrealised interest and charges on the extinguished exposure can no longer be booked as income on acquisition, and income from the SNFA is recognised as non-interest / other income only when actually realised. Amounts already recognised on SNFAs sitting in the books as on 30 September 2026 must be written back through the profit and loss account by 30 September 2027, a direct earnings impact in the transition year. The rule applies uniformly to commercial banks, small finance banks, NBFCs, AIFIs, urban and rural co-operative banks, RRBs and local area banks.