Financial Services Secretary M. Nagaraju on Wednesday asked public sector banks (PSBs) to get ready for the transition to the Expected Credit Loss (ECL) framework. He told lenders to accelerate the credit flow to the MSME and agriculture sectors while sustaining growth in low-cost deposits. PSBs were also advised to strengthen risk management frameworks.
While reviewing PSBs’ performance, Nagaraju told managing directors and CEOs to enhance preparedness for the transition to the ECL framework through robust models and data-driven provisioning.
Nagaraju commended the banks for their consistent progress and advised them to maintain the growth momentum in key sectors that drive employment and rural demand.
The secretary emphasised that digital transformation must be both inclusive and secure, urging banks to fortify cyber resilience, improve grievance redressal mechanisms, and adopt responsible AI and data analytics for superior customer service delivery.
The ECL framework is a new, forward-looking approach to loan-loss provisioning that requires banks to estimate and set aside reserves for potential credit losses much earlier than under the traditional “incurred loss” model. The banking sector has expressed concerns primarily regarding the significant one-time impact on profitability and capital, the high degree of subjectivity and judgement in modelling and substantial operational challenges in implementation.
The RBI has proposed that the ECL-based provisioning framework become applicable from April 1, 2027 for scheduled commercial banks (excluding SFBs, payment banks, RRBs) and All India Financial Institutions (AIFIs).
PSBs have reported a steady financial performance in the first half of FY26, with aggregate net profit rising to Rs 93,675 crore and gross NPAs declining to a multi-year low of 2.3%.
As of September 2025, the aggregate business of PSBs stood at Rs 261 lakh crore, with advances growing 12.3% year-on-year and deposits rising 9.6%. The net NPA ratio improved to 0.45%, the return on assets stood at 1.08% and the cost of funds declined to 4.97%, reflecting operational efficiency and robust profitability.
The progress under government flagship programmes such as PM Surya Ghar Muft Bijli Yojana, PM Vidya Lakshmi Yojana, PM Vishwakarma Yojana, and JanSamarth digital lending initiatives was also reviewed in the meeting. Banks were advised to enhance efficiency in application turnaround times, expand assisted journeys through business correspondents, and intensify coordination at the SLBC level.
PSBs have also improved their recovery performance. The National Asset Reconstruction Company (NARCL) has so far acquired stressed assets worth Rs 1.62 lakh crore, achieving substantial recoveries during H1FY26. Banks were encouraged to utilise digital platforms such as BAANKNET for faster, transparent resolution and to enhance early warning mechanisms to prevent slippages.