The Reserve Bank of India has strengthened the financial-statement disclosure framework applicable to Urban Co-operative Banks through the Reserve Bank of India (Urban Co-operative Banks – Financial Statements: Presentation and Disclosures) Amendment Directions, 2026. Effective from April 1, 2026, the amendments aim to provide stakeholders with clearer information about a bank’s transactions and credit exposures involving related parties. Banks may also adopt the revised requirements earlier, provided they implement them in their entirety.
For accuracy, the verified amendment is not a complete redesign of asset and liability classification. Its principal focus is the introduction of structured disclosures relating to related-party lending, asset quality and contractual arrangements. This is significant for UCBs because related-party transactions can create governance, concentration and conflict-of-interest risks when they are not identified, reviewed and reported appropriately.
What Has Changed for UCBs?
UCBs are now required to provide prescribed disclosures in their Notes to Accounts concerning loans and other credit facilities involving related parties. These disclosures provide a clearer view of the extent, performance and quality of such exposures.
The required information broadly covers:
- Aggregate value of loans sanctioned to related parties during the financial year
- Outstanding related-party loans as of March 31
- Related-party exposure as a proportion of the bank’s total credit exposure
- Amounts classified as Special Mention Accounts
- Amounts classified as Non-Performing Assets
- Provisions maintained against such exposures
- Contracts and arrangements entered into with related parties
- Transactions outstanding at the end of the financial year
The disclosures must follow the definitions and requirements contained in the applicable RBI Credit Risk Management Directions. This creates a direct connection between a bank’s credit-risk controls and the information presented in its audited financial statements.
Why Related-Party Disclosures Matter
Related-party transactions are not necessarily prohibited or improper. However, they require heightened scrutiny because personal, managerial or institutional relationships may influence lending decisions.
Detailed disclosures enable auditors, members, depositors, regulators and other stakeholders to examine whether such loans were granted transparently and whether they continue to perform satisfactorily. They also reveal whether related-party exposures are becoming stressed, overdue or inadequately provided for.
Accounting Standard 18 already establishes a framework for reporting relationships and transactions between an entity and its related parties. The RBI’s revised disclosure format supplements these accounting requirements by seeking banking-specific information on sanctioning, outstanding credit, asset classification and provisions.
Impact on Financial Reporting
The amendment moves UCB reporting beyond the disclosure of aggregate financial numbers. Banks must now connect each reported exposure with its underlying risk profile, classification and provisioning status.
This is expected to improve:
- Comparability of related-party exposures across reporting periods
- Visibility of potentially stressed accounts
- Accountability in connected lending decisions
- Oversight by the Board and Audit Committee
- Consistency between regulatory returns and financial statements
- Confidence in the integrity of the bank’s reporting process
The amendment may also help identify inconsistencies between loan documentation, related-party registers, core banking data, regulatory submissions and the general ledger before financial statements are finalised.
Implementation Priorities for UCBs
UCBs should not treat the amendment as an annual-report formatting exercise. Effective implementation requires coordination among the finance, credit, compliance, secretarial, audit and information-technology functions.
Banks should begin by identifying all related parties under the applicable regulatory and accounting definitions. Existing loan accounts must then be mapped to those parties, including facilities sanctioned, renewed, enhanced or outstanding during the year.
A maker-checker mechanism should verify the accuracy of exposure amounts, SMA and NPA classification, provisioning and year-end balances. The Board or its appropriate committee should periodically review material related-party exposures and ensure that decisions are properly documented.
The statutory auditor should also be provided with a complete reconciliation between the disclosure table, loan records, regulatory returns and audited accounts.
The 2026 amendments reinforce an important principle: credible financial reporting depends not only on presenting correct numbers but also on explaining the relationships, risks and transactions behind them. For UCBs, stronger related-party disclosures can improve governance, support regulatory supervision and strengthen stakeholder confidence.
