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.
Definitions:
Non-performing Assets (NPAs) are defined as loans where interest and/or installment of principal remain overdue for a period of more than 90 days.
An account is considered ‘out of order’ if there are no credits in the account for a period of 6 months or more, or if the credits in the account are not sufficient to cover the interest accrued.
An account is considered ‘overdue’ if the installment of principal or interest thereon remains overdue for a period of more than 30 days.
Income Recognition:
Banks must have a board-approved income recognition policy, which applies to government-guaranteed accounts as well.
Income recognition must be stopped immediately if an account becomes NPA.
Recovery of NPAs must be appropriated first towards the principal amount and then towards the interest.
Provisioning:
(Provisioning norms are not explicitly mentioned in the provided content)
Chat with the Master Circular: