Reserve Bank of India (Commercial Banks – Financial Statements: Presentation and Disclosures)- Seventh Amendment Directions, 2026

The Reserve Bank of India (RBI) issued the "Reserve Bank of India (Commercial Banks – Financial Statements: Presentation and Disclosures) Directions, 2025" —...

What Happened

The Reserve Bank of India (RBI) issued the "Reserve Bank of India (Commercial Banks – Financial Statements: Presentation and Disclosures) Directions, 2025" — a master direction consolidating all existing guidelines on how commercial banks must present and disclose information in their financial statements.
The directions are issued under Sections 35A and 56 of the Banking Regulation Act, 1949, and came into force with immediate effect upon issuance.
The Directions mandate standardised formats for key disclosures including non-performing investments (NPIs), related party exposures, real estate sector exposure, revenue reserves, and capital adequacy.
These directions apply to all scheduled commercial banks in India, with carve-outs for Small Finance Banks, Payment Banks, and Local Area Banks for certain provisions.
The stated objective is to enhance transparency, ensure comparability of financial statements across banks, and reduce information asymmetry for investors, regulators, and depositors.

Static Topic Bridges

RBI's Regulatory Powers Over Commercial Banks

The Reserve Bank of India exercises regulatory and supervisory authority over commercial banks under the Banking Regulation Act, 1949. Section 35A of the Act empowers the RBI to issue directions to banking companies in the public interest, in the interest of depositors, or to prevent affairs of banks being conducted in a manner detrimental to banking policy. This is the primary legal tool the RBI uses to issue binding regulatory directions on operational and disclosure matters.

Section 35A, Banking Regulation Act, 1949: Power to issue directions to all banking companies
Section 56: Extends provisions of the Act to cooperative banks (with modifications)
Master Directions: A regulatory instrument RBI uses to consolidate all circulars/guidelines on a specific topic into one comprehensive document
RBI also issues Master Circulars (annual updates) and circulars on specific issues, distinct from Master Directions

Connection to this news: The Directions are issued under this statutory authority, making compliance mandatory for all covered commercial banks. Banks must restructure their financial statement notes and schedules to conform to the prescribed formats.

Financial Statement Transparency and Banking Regulation

Financial statements of banks — comprising the Balance Sheet, Profit & Loss Account, and accompanying Notes to Accounts (Schedules) — are the primary documents through which banks communicate their financial condition to shareholders, depositors, and the regulator. Standardised disclosure requirements ensure that different banks' financial statements can be meaningfully compared.

Key disclosures mandated by these Directions include:
Non-Performing Investments (NPIs): Movement of provisions for NPI — opening balance, provisions made, write-offs/reversals, closing balance — disclosed for current and previous year
Related Party Exposures: Tabular disclosure of loans, outstanding amounts, proportion to total credit, SMA/NPA classification, provisions, and contracts awarded to related parties
Real Estate Sector Exposure: Separate disclosure of (a) CRE (Commercial Real Estate) lending secured by mortgages including land acquisition/development/construction; (b) REIT exposures; (c) other CRE exposures
Revenue Reserves: Redefined as all reserves other than capital reserves, excluding provisions for depreciation, asset diminution, or known liabilities

Connection to this news: These structured disclosure requirements directly improve the ability of analysts, investors, and the RBI to assess concentration risk, related-party conflicts of interest, and sectoral exposure vulnerabilities — areas historically prone to underreporting.

Non-Performing Assets (NPAs) and Bank Financial Health

An NPA is a loan or advance where interest or principal repayment has been overdue for more than 90 days. NPAs reduce a bank's profitability (through provisioning requirements) and its capacity to lend. India has undergone a significant NPA resolution cycle since the Asset Quality Review (AQR) of 2015-16, and the regulatory framework for NPA recognition, classification, and provisioning has been progressively tightened.

Gross NPA ratio of Indian scheduled commercial banks fell from a peak of ~11.5% (March 2018) to approximately 3-4% by 2024-25, reflecting resolution and write-offs
Non-Performing Investments (NPIs) are the investment-portfolio equivalent of NPAs — debt securities in a bank's portfolio on which coupon payments have defaulted
Provisioning for NPAs/NPIs reduces a bank's net profit; disclosures on NPI movement help assess the quality of the investment book
Special Mention Accounts (SMAs): Early warning classification — SMA-0, SMA-1, SMA-2 based on days past due

Connection to this news: Mandating standardised NPI disclosure movement schedules enables better surveillance of investment portfolio stress and reduces the risk of under-provisioning going undetected.

Key Facts & Data

Legal authority: Sections 35A and 56 of the Banking Regulation Act, 1949
Applicable to: All scheduled commercial banks (excluding Small Finance Banks, Payment Banks, Local Area Banks for certain provisions)
State Bank of India is explicitly included within the scope
Key new disclosure areas: NPI movement provisions, related party exposures (tabular), real estate sector breakdown (CRE + REITs), revenue reserves definition
"Revenue Reserve" redefined: All reserves excluding capital reserves, minus provisions for depreciation/asset diminution/known liabilities
Related Party NPA/SMA disclosure now mandated — a significant step in curbing connected lending risks
Real estate sector exposures now require separate disclosure of REIT exposures, signalling RBI's focus on emerging structured finance instruments
The Banking Regulation Act, 1949 is administered by the Ministry of Finance; however, enforcement powers under Section 35A vest with the RBI
Master Directions supersede all earlier circulars on the same subject and remain in force until explicitly withdrawn or amended