RBI’s 2025 Stressed Asset Resolution Directions for NBFCs: A Practical Compliance Guide

The Reserve Bank of India has notified the Reserve Bank of India (Non-Banking Financial Companies – Resolution of Stressed Assets) Directions, 2025 with immediate effect. These Directions lay down a single, consolidated regime for how NBFCs must identify, report and resolve stressed assets in a time-bound and prudential manner, including cases involving compromise settlements, technical write-offs, restructuring, change in ownership and participation in Debt Relief Schemes (DRS) sponsored by State Governments.

Earlier scattered instructions on stressed assets, compromise settlements, write-offs and project DCCO changes now stand replaced by this comprehensive framework, while actions already taken under old circulars remain valid.

This article rephrases and explains the operative parts of the Directions covered in the source text, with a compliance-focused lens for NBFC Boards, senior management, compliance officers and auditors.

1.1 Short title and effective date

  • The instructions are titled “Reserve Bank of India (Non-Banking Financial Companies – Resolution of Stressed Assets) Directions, 2025”.
  • They come into force immediately from the date of issue, unless a later date is specifically provided for any particular clause.

1.2 Categories of NBFCs covered

The Directions apply, unless otherwise specified, to the following regulated entities (collectively “NBFCs”):

  1. NBFC-D (deposit-taking NBFCs) registered under the RBI Act, 1934
  2. NBFC-ICC registered under the RBI Act, 1934
  3. NBFC-Factor registered under the Factoring Regulation Act, 2011
  4. NBFC-MFI registered under the RBI Act, 1934
  5. NBFC-IFC registered under the RBI Act, 1934
  6. IDF-NBFC registered under the RBI Act, 1934

In addition:

  • Paragraphs 86 to 100 apply to MGC registered under the Mortgage Guarantee Companies registration scheme.
  • Paragraphs 86 to 101 and Paragraphs 102 to 138 (not fully reproduced in the source text) apply to HFC registered under the NHB Act, 1987.

1.3 Entities excluded from these Directions

The framework is not applicable to:

  • CIC registered under the RBI Act, 1934
  • NBFC-P2P registered under the RBI Act, 1934
  • NBFC-AA registered under the RBI Act, 1934
  • SPD registered as NBFCs under the RBI Act, 1934
  • NOFHC registered as NBFCs under the RBI Act, 1934
  • NBFCs that do not access public funds and do not have any customer interface
  • NBFCs in the Base Layer that do have customer interface but do not access public funds

These coverage rules align with the scale-based regulation framework under the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025.

1.4 Asset-size based split of requirements

  • Part A of the Directions applies to:

    • All deposit taking NBFCs, and
    • All non-deposit taking NBFCs with asset size of ₹500 crore or more.

  • Part B applies to:

    • Non-deposit taking NBFCs with asset size below ₹500 crore.

1.5 IndAS NBFCs

NBFCs required to follow Indian Accounting Standards (IndAS) must continue to comply with:

  • Applicable IndAS, and
  • ICAI Advisories issued for NBFCs,

wherever there is a conflict between the Directions and accounting standards.

2. Key Definitions and General Requirements (Part A entities)

The Directions lay down extensive definitions that drive classification, restructuring, provisioning and timelines. Select important terms are summarised below.

2.1 Core terminology for stressed asset resolution

  • ‘aggregate exposure’
    Covers all fund-based and non-fund based exposures, including investments, of all specified lenders to a borrower.

  • ‘compromise settlement’
    Any negotiated arrangement where the borrower settles the NBFC’s entire claim in cash, typically involving sacrifice by the NBFC and corresponding waiver of claims to that extent.

  • ‘credit event’ in project finance
    For projects under implementation, a credit event is triggered on occurrence of any of the following:

    1. Default with any lender
    2. Need for extension of original/extended DCCO
    3. Expiry of original/extended DCCO
    4. Need for additional debt infusion
    5. Project facing financial difficulty as per the specified parameters

  • ‘default’
    Non-payment of debt (as defined under the Insolvency and Bankruptcy Code, 2016) when any due amount remains unpaid.

  • ‘interest during construction’
    Interest accrued on NBFC debt and capitalised during the construction phase.

  • ‘lender’ in project finance
    Includes:

    • Commercial Banks (including SFBs, excluding PBs, LABs, RRBs)
    • NBFCs (including HFC)
    • Primary (Urban) Cooperative Banks
    • All India Financial Institutions

  • ‘liquidation value’
    Estimated realisable value of borrower’s assets if liquidated as on the date of commencement of the Review Period.

  • ‘monitoring period’
    From implementation of the resolution plan until at least 10% of the sum of:

    • outstanding principal debt as per RP and
    • interest capitalised in restructuring
      has been repaid.

  • ‘outstanding principal debt’
    Includes all credit facilities and debt/debt-like instruments existing after implementation of resolution plan.

    Only equity and instruments compulsorily convertible into equity without options are excluded.

  • ‘residual debt’
    Total outstanding principal debt envisaged to be held by all specified lenders under the proposed resolution plan.

  • ‘resolution plan’ (projects under implementation)
    A feasible, time-bound, legally binding plan agreed by lenders and borrower for resolving project stress; may include:

    • Regularisation by payment of overdues
    • Sale of exposures
    • Change in ownership
    • Extension of DCCO
    • Restructuring

  • ‘restructuring’
    Any concession granted by the NBFC due to borrower’s financial difficulty, including:

    • Modified repayment terms, interest rate, instalments
    • Roll-over of facilities
    • Additional credit to cure default or enhance limits
    • Compromise settlements with payment period beyond 3 months

  • ‘review period’
    30 days from date of default or credit event, as applicable.

  • ‘satisfactory performance’
    No default by the borrower with any specified lender throughout the concerned period.

  • ‘specified lender’

    • Commercial Banks (including SFBs, excluding PBs, LABs, RRBs)
    • All India Financial Institutions
    • Deposit-taking NBFCs (excluding HFC)
    • Non-deposit taking NBFCs (excluding HFC) with asset size ≥ ₹500 crore

  • ‘specified period’
    From implementation of resolution plan until 20% of the sum of:

    • outstanding principal debt as per RP and
    • capitalised interest (if any)
      is repaid.

    For IBC restructurings, the specified period begins from implementation date under the Adjudicating Authority’s approved resolution plan.

  • ‘standby credit facility’
    Contingent facility sanctioned at financial closure to fund potential cost overruns in the construction phase.

  • ‘technical write-off’
    An accounting-only write-off (full or partial) of an NPA for balance sheet cleansing, without waiving any legal claim and without impairing recovery rights.

2.2 Alignment with other RBI frameworks

The Directions cross-reference and adopt definitions for terms like Commercial Real Estate (CRE), CRE-RH, Original DCCO, Extended DCCO, Infrastructure Sector, Project Finance, etc. from the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025.

Where not specifically defined, expressions carry the meaning assigned under:

  • Banking Regulation Act, 1949
  • Reserve Bank of India Act, 1934
  • Companies Act, 2013
  • Other RBI regulations and the RBI Glossary of Terms.

3. Mandatory Board-Approved Policies

3.1 Policy for stressed asset resolution and financial difficulty

Every covered NBFC must adopt comprehensive, Board-approved policies that:

  • Lay down governance and timelines for resolution of stressed assets;
  • Define “financial difficulty” using both quantitative and qualitative parameters;
  • Embed early-warning indicators consistent with global standards.

The Directions provide an indicative, non-exhaustive list of financial difficulty indicators (aligned to Basel Committee principles), including:

  • Any default, regardless of reason, is automatically a sign of financial difficulty.
  • High likelihood of future default despite current non-default status, evidenced by recurring delinquencies.
  • Delisting or threatened delisting of the borrower’s securities from exchanges on account of financial or compliance issues.
  • Cash flow projections (based on current operations and estimates) showing inability to service all debt as per contractual terms.
  • Current facilities that are or would be non-performing without concessions.
  • Exposures flagged as weakened or stressed under the NBFC’s internal rating framework.

NBFCs must supplement this list with financial ratios and operational metrics in their policy, and recognise that arrears are not mandatory for diagnosing financial difficulty.

3.2 Policy on compromise settlements and technical write-offs

NBFCs must adopt a detailed Board-approved framework covering:

  1. Procedural steps for compromise settlements and technical write-offs, including:

    • Minimum ageing criteria
    • Collateral deterioration thresholds
    • Other preconditions identified by the NBFC

  2. Staff accountability review

    • Tiered mechanism depending on size and seriousness of the case
    • Defined thresholds and timelines

  3. Permissible sacrifice norms

    • Category-wise caps on sacrifice percentages
    • Mandatory consideration of current realizable value of security/collateral

  4. Valuation methodology

    • Clear process to determine recoverable value of collateral in compromise cases