What is IRAC Norms?
IRAC (Income Recognition, Asset Classification and Provisioning) Norms are RBI's master rules under which banks classify loans as Standard, Substandard, Doubtful or Loss and hold appropriate provisions. They define when interest can be booked as income and when an account becomes NPA.
| Meaning | IRAC (Income Recognition, Asset Classification and Provisioning) Norms are RBI's master rules under which banks classify loans as Standard, Substandard, Doubtful or Loss and hold appropriate provisions. They define when interest can be booked as income and when an account becomes NPA. |
|---|---|
| Category | Banking & NPA |
| Related Laws | RBI Master Direction on IRAC Norms |
| Who Uses It | Banks, auditors |
| Why It Matters | Backbone of every NPA classification in India. |
IRAC Norms explained in plain English
A practitioner's view written for borrowers and advisors — not a textbook definition.
IRAC (Income Recognition, Asset Classification and Provisioning) Norms are RBI's master rules under which banks classify loans as Standard, Substandard, Doubtful or Loss and hold appropriate provisions. They define when interest can be booked as income and when an account becomes NPA.
In practice, IRAC Norms is used most often by banks, auditors. Each of them sees the term from a slightly different angle: borrowers care about protection and outcomes, lenders care about classification and recovery, regulators care about consistency and disclosure.
The legal anchor for IRAC Norms is RBI Master Direction on IRAC Norms. RBI master directions, the SARFAESI Act 2002, the RDB Act 1993 and the IBC 2016 commonly interplay, depending on the loan size, security and stage of stress.
Why does it matter? Backbone of every NPA classification in India. For a stressed borrower, getting this concept right early often saves several months of penal interest, legal cost and credit-score damage.
A real example: Bank stops booking interest on a loan once it crosses 90 days overdue under IRAC. The mechanics may look complex, but the underlying logic — the bank wants closure, the borrower wants a fair outcome — is straightforward once the right framework is in place.
If you are facing a situation involving IRAC Norms, the safest first step is a structured case review with a senior ex-banker who has handled comparable matters across banks and ARCs in India.
Where you'll encounter IRAC Norms
Whenever a loan moves from "Standard" to "stressed", IRAC Norms is one of the words that starts appearing in notices, bank emails and lawyers' opinions.
Sanctioning committees, recovery teams and risk officers use IRAC Norms to classify accounts, decide provisioning and approve resolution paths.
IRAC Norms appears in pleadings, securitisation applications, OAs, Section 7/9 petitions and SARFAESI writs as part of the dispute record.
When stressed loans are sold to ARCs or special-situations investors, IRAC Norms is used in term sheets, assignment agreements and due-diligence reports.