RBI Regulations: Priority Sector, IRAC Norms and Recovery Law
RBI regulations test your command of the rulebook that decides when an asset turns bad, what must be provided against it, and how much credit must flow to priority sectors - the compliance backbone of every credit file.
Priority sector lending
Target is 40% of adjusted net bank credit (or off-balance-sheet exposure, whichever is higher). Sub-targets: agriculture 18%, small and marginal farmers 10%, weaker sections 12%, micro enterprises 7.5%. Shortfalls go to the RIDF and similar funds.
Asset classification under IRAC
- SMA-0: 1–30 days overdue; SMA-1: 31–60 days; SMA-2: 61–90 days; NPA beyond 90 days.
- Sub-standard: NPA for up to 12 months. Doubtful: beyond 12 months, graded D1–D3 by security cover. Loss: identified as unrecoverable.
- Provisioning: 15% on secured sub-standard, 25% on unsecured sub-standard, 40% on doubtful assets (scaled by realisable security), 100% on loss assets; standard assets carry a small general provision.
- Upgradation requires the entire arrears to be cleared and the account to stay regular.
Recovery law
SARFAESI Act 2002 - 60-day demand notice under Section 13(2), possession under Section 13(4) with District Magistrate help under Section 14; DRT for debt recovery; IBC 2016 for time-bound CIRP.
Worked example
A loan falls due on 1 April and is unpaid. It becomes SMA-1 on 1 May (day 31), SMA-2 on 31 May (day 61), and an NPA on 30 June (day 91). The provisioning clock runs from the NPA date, not from the original due date.
Traps
- Applying the sub-standard 15% rate to a doubtful asset.
- Forgetting the 7.5% micro-enterprise sub-target inside PSL.
- Assuming one paid EMI upgrades an account automatically.