RBI Master Circular on Prudential Norms for Income Recognition, Asset Classification (IRAC) and Provisioning pertaining to Advances

RBI has issued Master Circular on Prudential Norms for Income Recognition, Asset Classification (IRAC) and Provisioning pertaining to Advances, which consolidates the RBI Guidelines/ Directions/ Instructions/ Revisions on the subject upto 30/09/2021.

RBI has implemented the Prudential Norms for the advances portfolio of the banks for greater consistency and transparency in the published accounts.

As per Prudential Norms, the income recognition policy should be objective and should enforce that income is recognised based on the record of recovery, instead of any subjective considerations. The banks are not supposed to charge/ debit interest in any NPA account and for taking to income account (i.e. income recognition), including for Government guaranteed accounts. However, interest on advances against Term Deposits/ NSC/ IVP/ KVP/ Life policies may be recognised on due date (i.e. without realisation), provided adequate margin is available.

Likewise, Banks are required to classify the non performing assets into three categories, i.e. Sub-standard, Doubtful or Loss Assets, based on the period for which the asset has remained non performing and/ or the dues have remained unrealised. Banks are required to conduct the exercise of classification of assets on the basis of objective criteria to ensure a uniform and consistent application of the Prudential Norms.

Also, the Bank Management and Statutory Auditors are responsible for ensuring that requisite/ adequate provisioning has been made, based on the ‘age of assets having been classified as NPA’ and the realisable value of the available security under respective accounts, for compliance with the Prudential Norms.

RBI Master Circular 2021-2022/104 dt. 01/10/2021: Prudential norms on Income Recognition, Asset Classification (IRAC) and Provisioning pertaining to Advances (consolidated upto 30/09/2021).

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  1. Pooja Garg

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