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Prudential Norms On Income Recognition, Asset Classification And Provisioning On Advances

P
Vipul K. Choksi

rudential norms on income recognition, asset classification and provisioning (IRAC norms) pertaining to advances portfolios of banks were introduced for the first time by Reserve Bank of India during financial year 1992-93 i.e. year ended 31st March 1993 in line with the international practices.

and does not carry more than normal risk attached to the business. Non-Performing Asset (NPA): An asset becomes NPA when it ceases to generate income for the bank. This would mean that interest, which is debited to borrower’s account, has to be realised by the bank. An account has to be

The author is member of the Institute. He can be reached at choksi.vipul@ gmail.com

For bank branch audits the auditors have to keep themselves abreast of the applicable IRAC norms incorporated in the RBI’s Master Circular dated 1st July 2005. On the basis of the guidelines provided in this circular which are relevant for audit of F.Y.2005-06, auditor will be required to take the audit steps like Asset Classification, Income Recognition, Provisioning Norms, Restructuring of loans/CDR/Project under implementation, Agricultural advances, Classification of NPA borrower-wise and not facility-wise, Upgradation of Account From NPA to Standard and Regularisation of account at near about balance sheet date.This article discusses salient features and some of the practical aspects of prudential norms pertaining to advances of banks. The prudential norms are formulated on the basis of objective criteria rather than on any subjective consideration. This has brought in uniform and consistent application of the norms and greater transparency in published accounts of banks. Reserve Bank of India has been issuing Master Circulars on prudential norms for past few years. Last Master circular on prudential norms pertaining to advances was issued by Reserve Bank of India on 1st...