What are the IRAC norms?
Income recognition, asset classification and provisioning.
The Reserve Bank's framework covering three linked questions: when a lender may recognise income on an account, how the account is classified as it deteriorates, and how much must be held against it. The three are one instrument because they move together — an account that stops performing stops earning recognised income on the same day it becomes non-performing.
How are IRAC norms calculated?
Classification is computed on the day-end position for a named business date, not on a timestamp. On an Indian book that distinction is not academic: comparing timestamps in UTC gets every date wrong by five and a half hours, which at a month end is a whole day.
IRAC norms: a worked example
An account crosses ninety days past due on 30 June. The classification runs in that night's day-end process with a business date of 30 June, interest accrued but uncollected is reversed to suspense, and provisioning steps up. A report run at 11am on 30 June, before the day-end, is answering a different question and will give a different number.
Why do IRAC norms matter?
It is the framework a lender is examined on. Two people running the same asset-quality report at different hours of the same day should not get different answers, and under IRAC they do not — because the answer is about a day, not a moment.
What the regulations say about IRAC norms
The Master Circular on income recognition, asset classification and provisioning, together with the November 2021 clarification on overdue flagging and the February 2021 rule that an upgrade requires the entire arrears to be cleared.
What a lending system has to do about IRAC norms
Classification runs as a scheduled day-end job rather than on user request, and reads the day-end position. Reversal of accrued income on classification is posted to suspense as its own event.
Related terms
- NPA (non-performing asset) — An account where payment is overdue beyond the prescribed period.
- SMA-0, SMA-1, SMA-2 — Special mention accounts — the stages before NPA.
- Provisioning — The amount set aside against expected loss.
- Interest accrual — Interest earned as time passes, whether or not it has been collected.
From the people who wrote this
Run your lending on Lenviq
The section above describes what a lending system has to do about this term. Lenviq does it — on every account, computed at day-end, with the direction it comes from recorded against it.
Lenviq is loan origination, servicing and accounting for NBFCs, built by FastLegal Technologies.