Guidelines of the Reserve Bank of India on Income Recognition, Asset Classification, Provisioning and Other Related Matters
In its report submitted in 1992, the Committee on Financial System set up by the RBI under the Chairmanship of Mr. M. Narasimham made several recommendations concerning accounts of banks. The Committee recommended that a policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations. Likewise, the classification of assets should be done on the basis of objective criteria which would ensure a uniform and consistent application of norms. As regards provisioning, the Committee recommended that provisions should be made on the basis of classification of assets under different categories. Vide its Circular No. BP.BC.129/21.04.043-92 dated April 27, 1992, the Reserve Bank issued guidelines to be followed by all scheduled commercial banks (excluding regional rural banks) for income recognition, asset classification, provisioning and other related matters. These guidelines (commonly referred to as ‘prudential guidelines’ or ‘prudential norms’) have since been modified in several respects through various circulars of the Reserve Bank. The latest Master Circular No. RBI/2015-16/101DBR .No.BP.BC .2/21.04.048/2015-16 was issued on July 1, 2015 on ‘Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances”. The salient points of the guidelines as presently in force are discussed below: