How Provisioning AI classifies accounts under RBI IRACP norms

The RBI's Income Recognition, Asset Classification, and Provisioning (IRACP) norms do not allow discretion about when an account becomes a Non-Performing Asset. An account where interest or principal is overdue for more than 90 days is an NPA. Not approximately 90 days, not by the end of the month — 90 days from the date the overdue first arose. The Provisioning AI counts those days for every account in the portfolio, every day, and reclassifies accounts the moment the threshold is crossed.

What the IRACP norms require — and where manual classification fails

The IRACP norms establish a hierarchy of asset quality categories: Standard, Sub-Standard, Doubtful (D1, D2, D3), and Loss. Each category has a specific definition based on the number of days an amount has been overdue, and each triggers a specific provisioning requirement. The classification must be reviewed at least quarterly for regulatory reporting, but the RBI's expectation — made explicit in successive circulars — is that the actual NPA status of an account should be updated as it occurs, not retroactively applied at the quarterly review.

Manual classification processes fail this expectation in three ways. First, the DPD (Days Past Due) count is computed from a reference date that may differ from the actual date the overdue first arose — a system-level error that systematically understates DPD. Second, classification is reviewed quarterly rather than daily — accounts that crossed the 90-day threshold on day 60 of the quarter are classified as NPAs 30 days later than the norm requires. Third, upgrade and downgrade decisions are made by human reviewers who may apply inconsistent criteria for accounts at the boundaries between categories.

The Provisioning AI eliminates all three failure modes by computing DPD from the actual first-overdue date, running the classification check daily for every account, and applying the IRACP criteria mechanically and consistently — with the classification change logged, evidenced, and timestamped at the exact moment it occurs.

The IRACP classification framework: the complete hierarchy

The daily classification run: what the Provisioning AI processes every midnight

At midnight every calendar day, the Provisioning AI runs the classification check for every active account in the portfolio. The process: pull the current DPD count from the core banking system (CBS), compare against the IRACP threshold for the account's current classification, determine whether a downgrade, upgrade, or no-change is triggered, and write the updated classification and provision requirement back to the CBS. The entire run completes before business opens, so the credit team starts each day with a current, accurate view of asset quality.

The DPD count is computed from the actual first-overdue date — the date of the first missed payment, not the date of the last statement or the date the collection team first noticed the account. This distinction matters at the 90-day and 455-day thresholds where a 1-day error in the DPD count can determine whether an account is a Standard or Sub-Standard asset, or whether it is D1 or D2 — and the provisioning difference between those categories can be hundreds of thousands of rupees on a single large account.

The 90-day watch list: catching accounts before they breach

The Provisioning AI does not wait until day 91 to flag an account. Accounts that reach 75 days DPD are placed on the 90-day watch list — a daily-monitored subset of the portfolio where collection teams receive an alert: this account will become Sub-Standard in 15 days if not regularised. The 15-day alert gives the collection team an operational window to attempt regularisation before the NPA classification triggers and the provisioning requirement changes.

The 75-day threshold is not arbitrary — it reflects the operational reality of the collection cycle. A borrower who makes a payment on day 80 will regularise the account before the NPA threshold and avoid the classification downgrade. A borrower who does not respond to the 75-day alert and the 85-day reminder will cross the threshold on day 91 and be classified immediately — with the Provisioning AI having created the full audit trail showing that collection attempts were made before and after the NPA threshold.