The Reserve Bank of India vide its notification dated 1st November 2021 has issued a master circular on Income Recognition, Asset Classification, Provisioning and Other Related Matters. In order to reflect a bank’s actual financial health in its balance sheet and as per the recommendations made by the Committee on Financial System, the Reserve Bank has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks.
With the introduction of prudential norms, the Health Code-based system for classification of advances has ceased to be a subject of supervisory interest. As such, all related reporting requirements, etc. also ceased to be a supervisory requirement but could be continued in the banks entirely at their discretion and the management policy.
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. The provisioning should generally be made on the basis of the classification of assets into different categories.
Banks must fix a Date of Commencement of Commercial Operations (DCCO) for all project loans at the time of sanction of the loan / financial closure.
