IRAC Norms and Provisioning: 2026 IIBF Accounting & Audit Guide

IRAC norms — this guide gives you the latest 2026 understanding of how banks classify assets, recognise income and make provisions, and exactly what IIBF Certified Accounting and Audit Professional candidates must remember.

For anyone preparing the Certified Accounting and Audit Professional certification, IRAC norms are among the most heavily tested and most practically important topics. Income Recognition, Asset Classification and Provisioning are the RBI's prudential rules that decide when a loan stops earning income on the books and how much a bank must set aside against the risk of loss.

In this guide we unpack the asset classification categories, the 90-day rule that defines a non-performing asset, the income-recognition principle, the provisioning requirements, and how to approach this topic in the exam with confidence.

What Are IRAC Norms and Why They Matter

IRAC norms stand for Income Recognition, Asset Classification and Provisioning norms — the prudential framework prescribed by the Reserve Bank of India for how banks recognise income on advances, classify those advances by quality, and provide for expected losses. The objective is to ensure that a bank's published accounts reflect its true financial health rather than an optimistic picture.

The framework rests on an objective test of recoverability. Income cannot be booked merely because it has been charged; it must be recognised on a realistic basis. Likewise, an account is downgraded based on how long it has been overdue, not on management's hope of recovery. This discipline protects depositors and the financial system.

For a banker, IRAC norms directly affect reported profit, capital adequacy and the provisioning burden. Mastering them is essential, and you can sharpen the detail with our IIBF mock tests.

Asset Classification Categories

Under IRAC norms, advances are classified into two broad groups: performing assets (standard assets) and non-performing assets (NPAs). A standard asset is one that is not an NPA and does not carry more than normal risk. An NPA is further classified into three categories based on the period for which it has remained non-performing.

A sub-standard asset is one that has remained an NPA for a period of up to 12 months. A doubtful asset is one that has remained in the sub-standard category for 12 months, meaning it has been an NPA for more than 12 months. A loss asset is one where loss has been identified by the bank, internal or external auditors, or the RBI inspection, but the amount has not been fully written off.

The progression from standard to loss reflects deteriorating recoverability, and each downgrade triggers higher provisioning. Drill the time thresholds, since precise category definitions are a perennial exam favourite, and read related guides on our blog to broaden your context.

The NPA Definition and Income Recognition

Under IRAC norms, a term loan is treated as an NPA when interest or instalment of principal remains overdue for more than 90 days. For a cash credit or overdraft, the account is an NPA if it remains out of order, and for bills purchased and discounted, if the bill remains overdue for more than 90 days. The 90-day overdue rule is the central trigger.

On income recognition, the policy is that a bank should not recognise income on a non-performing asset on an accrual basis; it should be booked as income only when actually realised. Furthermore, if any advance becomes an NPA, the unrealised interest already taken to income in the past must be reversed or provided for.

This is why a single account turning NPA can dent reported profit on two fronts: lost future income and reversal of past income. Understanding the mechanics here lets you answer applied questions precisely. Keep current with circular changes through our regulatory updates page.

Provisioning Requirements

Provisioning is the heart of prudence under IRAC norms. Standard assets attract a general provision at prescribed rates that vary by sector. For NPAs, provisioning rises with the severity of classification. Sub-standard assets attract a base provision on the secured portion, with a higher rate on the unsecured exposure.

Doubtful assets require provisioning that escalates with the age of the doubtful classification on the secured portion — increasing the longer an account stays doubtful — and full provision on the unsecured portion. Loss assets must be fully provided for, that is, the entire outstanding should be written off or provided for if retained on the books.

Because the exact percentages are revised by the RBI from time to time and vary by category, candidates should learn the structure and logic of provisioning rather than rely on a stale number, and confirm current rates from primary sources. Track policy and rate context on our RBI rates resource page.

Exam Strategy for Accounting and Audit Candidates

Questions on IRAC norms typically test the asset classification categories and their time thresholds, the 90-day NPA trigger across facility types, the income-recognition and interest-reversal rule, and the logic of escalating provisioning. Build a one-page chart mapping each category to its period and provisioning approach, and practise classifying sample accounts from given facts.

Pair conceptual revision with timed practice and review each fresh RBI master circular summary so your answers reflect current norms. Focus your final revision on the precise definitions, since marks here are won on accuracy. Begin your free IIBF practice tests today and track your progress on iibf.store.

Source: Reserve Bank of India — rbi.org.in

Frequently Asked Questions

Master IRAC norms and the rest of the Certified Accounting and Audit Professional syllabus by combining conceptual notes with timed practice. Start your free IIBF mock tests today and track your progress on iibf.store.