The Reserve Bank of India on 1st October 2021 has notified the prudential norms on income recognition, asset classification and provisioning pertaining to advances.
As per RBI the policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations.
Likewise, the classification of assets of banks has to be done on the basis of objective criteria which would ensure a uniform and consistent application of the norms.
Banks are urged to ensure that while granting loans and advances, realistic repayment schedules may be fixed on the basis of cash flows with borrowers. This would go a long way to facilitate prompt repayment by the borrowers and thus improve the record of recovery in advances.
Further the 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) Substandard Assets (ii) Doubtful Assets (iii) Loss Assets.
Banks should also disclose the total amount of advances for which intangible securities such as charge over the rights, licenses, authority, etc. has been taken as also the estimated value of such intangible collateral. The disclosure may be made under a separate head in “Notes to Accounts”. This would differentiate such loans from other entirely unsecured loans.
