Leading public sector banks (PSBs) are building a combined war chest of around ₹20,000 crore in provisions as they prepare to transition to the Reserve Bank of India’s expected credit loss (ECL)-based provisioning framework from April 1, 2027.
Some of these lenders have already started front-loading provisions to cushion the impact of the new norms ahead of their rollout.
The ECL framework, which will replace the current ‘incurred loss’ model, aligns with the International Financial Reporting Standards (IFRS) and requires banks to adopt a forward-looking approach towards provisioning. Instead of setting aside funds after defaults occur, banks will now have to factor in potential future losses based on historical data and credit risk trends.
To ease the transition, the RBI has provided a glide path until March 31, 2031, to mitigate the one-time impact of higher provisioning on existing loan books.
Several PSBs have already assessed the likely impact of the transition. Punjab National Bank (PNB) expects an estimated ₹9,000-crore hit. Most of this impact will stem from “Stage 2” assets — accounts showing elevated risk, but not yet in default — which could trim about 0.85 percentage points off its capital ratio, Reuters reported citing CEO Ashok Chandra.
Bank of India MD & CEO Rajneesh Karnatak said the ECL norms could lower its capital to risk-weighted assets ratio (CRAR) by about one percentage point annually. “Given that we have already earned a net profit of around ₹4,800 crore in the first half of FY26 and expect to close the year with about ₹10,000 crore, the impact on CRAR will only be around 1%,” he said in the Q2 earnings call. The one percentage point impact translates to roughly ₹4,600–₹4,700 crore in additional provisioning.
Under the ECL framework, banks are required to classify loans into three stages of credit risk. Stage 1 assets will attract 12-month ECL provisions; Stage 2 assets, which show a significant increase in credit risk, will require lifetime ECL provisions; and Stage 3 assets — those considered credit-impaired — will also be provisioned at lifetime ECL levels.
Indian Overseas Bank expects an additional provisioning requirement of around ₹2,800 crore over four years as it transitions to the ECL regime. “Since we are generating healthy profits, we plan to create a buffer so that when the D-Day comes, we have a cushion of ₹3,000–4,000 crore or whatever is required. However, giving a specific number at this stage may be a bit dicey,” Managing Director Ajay Kumar Srivastava told FE.
Other PSBs are also gradually building smaller buffers to absorb the future impact. UCO Bank, for instance, reported a modest 3% year-on-year rise in net profit to ₹620 crore in Q2, owing to higher provisioning expenses. MD & CEO Ashwani Kumar clarified that the increase was not due to asset quality concerns. “We have started working towards the ECL framework and are making additional provisions every quarter to be ready when it becomes effective from April 2027.”
“We currently hold ₹1,000 crore of provisions over and above RBI requirements to meet ECL norms,” he said, noting that the bank will continue to build on this buffer.
State Bank of India is yet to announce its second-quarter results and provisioning estimates under ECL.
Among private sector lenders, ICICI Bank, Axis Bank and HDFC Bank have not disclosed their potential provisioning impact, but are seen to be better placed, given their large contingency buffers. ICICI Bank currently holds ₹13,100 crore in contingency provisions, while HDFC Bank added ₹1,500 crore during the quarter, maintaining floating provisions of ₹21,400 crore, taking its total such provisions to ₹38,100 crore — about 1.4% of its loan book.
