RBI latest Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances
Reserve Bank of India has issued latest Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances. This Circular replaces earlier Master Circular dated 1st July 2015 consolidating instructions / guidelines issued to banks till June 30, 2015.
An asset, including a loan or advance becomes non performing when it ceases to generate income for the bank. In other terms, interest/loan amount becomes overdue for a period of more than 90 days. Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank. In addition, an account may also be classified as NPA in terms of certain specific provisions.
Banks are required to classify non performing assets further into the following three categories based on the period for which the asset has remained non performing and the realisability of the dues:
(i) Sub standard Assets
(ii) Doubtful Assets
(iii) Loss Assets.
In conformity with the prudential norms, provisions should be made on the non performing assets on the basis of classification of assets into prescribed categories. Taking into account the time lag between an account becoming doubtful of recovery, its recognition as such, the realisation of the security and the erosion over time in the value of security charged to the bank, the banks should make provision against substandard assets, doubtful assets and loss assets as prescribed in the Master Circular.
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