Prudential Norms on Income Recognition, Asset Classification, and Provisioning
The Reserve Bank of India has issued a master circular outlining prudential norms for income recognition, asset classification, and provisioning pertaining to advances.
Income Recognition: The income recognition policy applies to all accounts, including government-guaranteed ones. Reversal of income is required in cases where the income is not realized. Recoveries in non-performing assets (NPAs) should be appropriated first towards the principal amount and then towards interest.
Asset Classification: Assets are categorized into three types of NPAs: substandard, doubtful, and loss assets. Banks must have internal systems in place to identify NPAs in a timely manner.
Provisioning: The circular outlines guidelines for provisioning requirements for NPAs, including the computation of NPA levels.
The circular aims to ensure that banks follow prudent practices in income recognition, asset classification, and provisioning to maintain financial stability and transparency.
Chat with the Master Circular: