Indian banks are well prepared for the implementation of the final expected credit loss (ECL) guidelines released by the Reserve Bank of India on Monday, according to market participants and analysts.
“Banks have been preparing for this for quite some time—over the past two years—so they are largely ready from a compliance standpoint. A few may need minor system adjustments, but with a full year ahead, that should be manageable,” said a public sector banker.
Despite banks seeking a delay, citing the need for more time to build databases. However, the central bank has mandated implementation from April 2027, with a phased glide path extending to March 2031.
Veteran banker Dinesh Khara told a media channel there is adequate preparedness across the system and that the move should not be viewed as a shock. He estimates the overall impact on profitability at around Rs 50,000–60,000 crore.
Analysts noted that public sector banks are likely to face a larger impact, as many have not built comparable provision buffers, unlike private sector lenders, which have followed a more conservative approach.
“The impact on PSU and mid-tier banks will be higher; several PSU banks have indicated that the one-time provisioning hit could affect net worth by 3–9%. Large private banks are better placed, in our view, as the transition impact would be lower given provision buffers of around 2–4% of net worth,” Nomura said in a report.
The brokerage added that the new norms will require higher upfront provisioning, particularly in unsecured retail, MSME and corporate exposures.
Sachin Sachdeva, vice president and sector head at ICRA, said several banks have already begun making additional provisions to smooth the transition. “The option to spread the impact over a four-year period will reduce pressure on capital ratios. Moreover, capital release from changes in capital charge requirements will partly offset the impact,” he said.
Under the ECL framework, assets will be classified into three stages based on the evolution of credit risk since origination. Stage 1 includes assets with no significant increase in credit risk and requires recognition of a 12-month ECL. Assets move to Stage 2 when there is a significant increase in credit risk but they are not yet credit-impaired, and to Stage 3 when they become credit-impaired. Lifetime ECL must be recognised for both Stage 2 and Stage 3 assets.
Bandhan Bank, in its post-earnings call on Tuesday, said that based on estimates using the draft guidelines and December 2025 data, it would need to make additional provisions of around Rs 1,250 crore. The bank indicated it could either provide Rs 250 crore annually over five years or around Rs 300 crore annually over four years. However, it added that under the final guidelines, the actual requirement could be in line with or lower than earlier estimates.
Banking shares tumble on higher provisioning
Banking shares fell by up to 2.87% following the release of the final expected credit loss (ECL) guidelines by the Reserve Bank of India on Monday. The Bank Nifty declined 1.54%, underperforming the benchmark Nifty, which fell 0.4%.
The decline was sharper in public sector banks compared to private lenders. The Nifty PSU Bank index fell 2.15%, while the Nifty Private Bank index declined 1.23%. Among PSU banks, Union Bank of India and Punjab & Sind Bank were among the top losers. In the private sector, HDFC Bank, ICICI Bank and Axis Bank led the decline.