What changed
RBI inserted paragraphs 47A and 47B in the AIFI Income Recognition, Asset Classification and Provisioning Directions, allowing standard accounts to remain standard post-resolution plan implementation (if plan adheres to Chapter VI-A provisions) and upgrading NPAs to standard upon plan implementation. It also added new provisioning norms (68A-68D) requiring 5% additional specific provision on outstanding debt for accounts under resolution plans implemented per Chapter VI-A, with an extra 5% for each instance of restructuring under those Directions.
What it means for you
AIFIs must now set aside additional capital for restructured loans, increasing provisioning costs and potentially impacting profitability. The upgrade path for NPAs post-resolution offers relief but comes with strict conditions. Repeated restructuring will attract cumulative provisioning, discouraging frequent restructuring and encouraging quicker resolution.
What you must do
- Update internal policies to include 5% additional specific provisioning for all resolution plans implemented under Chapter VI-A of the Reserve Bank of India (All India Financial Institutions – Resolution of Stressed Assets) Directions, 2025.
- Track repeated restructuring instances under Chapter VI-A and apply additional 5% provisioning for each instance.
- Ensure systems can reverse provisions only when borrower pays at least 20% of the outstanding debt with the bank without slipping into NPA post-restructuring and without another restructuring.
- For non-fund-based or cash credit/overdraft facilities, set up monitoring to reverse provisions after one year of no default post-restructuring.
- Train credit and risk teams on the new classification rules for standard accounts and NPA upgrades post-resolution plan implementation.
Who it affects
All India Financial Institutions (AIFIs), Borrowers with restructured loans under AIFI resolution plans, Risk and compliance teams at AIFIs, Auditors and regulators monitoring AIFI asset quality
Can a standard account remain standard after a resolution plan is implemented?
Yes, if the resolution plan adheres to the provisions of Chapter VI-A of the Reserve Bank of India (All India Financial Institutions – Resolution of Stressed Assets) Directions, 2025, the account can retain its standard classification upon implementation.
What happens to an NPA account that is restructured under a resolution plan?
It will be upgraded to 'Standard' upon implementation of the resolution plan, provided the plan follows the specified provisions of Chapter VI-A.
When can the additional 5% provision be reversed?
The provision can be reversed after the borrower pays at least 20% of the outstanding debt with the bank without slipping into NPA post-restructuring and without another restructuring. For non-fund-based or cash credit/overdraft facilities, reversal is allowed after one year post-restructuring, provided no default during that period.