The Reserve Bank of India has issued a revised and updated Master Circular consolidating all instructions and guidelines issued to banks until March 31, 2024, regarding prudential norms on income recognition, asset classification, and provisioning related to loans and advances. This master circular does not contain any new instructions or guidelines.
RBI Master Circular dated 01/04/2024: Prudential norms on Income Recognition, Asset Classification (IRAC) and Provisioning pertaining to Advances (consolidated upto 31/03/2024)
It should be noted that in line with international practices and as per the recommendations made by the Committee on the Financial System (chaired by Shri M. Narasimham), the Reserve Bank of India has gradually introduced prudential norms for income recognition, asset classification, and provisioning for the advances portfolio of banks. This move aims to promote greater consistency and transparency in the published accounts of banks.
The policy for income recognition should be objective and based on the record of recovery rather than subjective considerations. Similarly, the classification of assets of banks must be done based on objective criteria to ensure uniform and consistent application of the norms. Additionally, provisioning should be made based on the classification of assets, considering the period for which the asset has remained non-performing, the availability of security, and the realizable value thereof.
The RBI has urged banks to ensure that when granting loans and advances, realistic repayment schedules are set based on the borrowers’ cash flows. This would facilitate prompt repayment by borrowers and improve the record of recovery in advances.