RBI to Meet Bankers, Industry Stakeholders on Nov 12 to Discuss ECL Provisioning Framework

The Reserve Bank of India (RBI) will meet bankers and industry stakeholders on November 12 to discuss the proposed Expected Credit Loss (ECL) provisioning framework, as lenders seek changes to provisioning percentages and a more flexible transition to the new accounting rules.

Banks are concerned that the additional provisioning requirements could affect their profitability and regulatory capital when the framework takes effect on April 1, 2027. Lenders are therefore discussing whether the extra provisioning burden can be spread across multiple years instead of being recognised entirely upfront.

The discussions are expected to focus on implementation methodology, provisioning calculations and banks’ preparedness for the transition. The RBI is reportedly open to industry feedback as it works towards a smoother adoption of the new framework.

Key Highlights

• RBI will meet bankers and industry stakeholders on November 12 to discuss the ECL provisioning framework.
• Banks want the regulator to reconsider provisioning percentages and allow additional provisions to be recognised over multiple years.
• The new ECL accounting framework is scheduled to take effect from April 1, 2027.
• The framework replaces the incurred-loss approach with forward-looking expected credit loss calculations.
• A four-year transitional arrangement will help banks manage the impact on regulatory capital, with permitted CET1 add-backs declining from 80% in FY28 to 20% in FY31.

Why Is RBI Meeting Bankers on November 12?

The RBI’s November 12 meeting comes as banks seek greater clarity on the implementation of the ECL framework. Lenders have raised concerns about the proposed provisioning percentages and the financial impact of moving to the new accounting system.

According to people familiar with the discussions, banks are exploring whether the additional provisioning burden can be distributed across multiple years rather than being recognised entirely at the beginning of the transition.

The objective is to discuss the methodology, collect feedback from the banking industry and build greater consensus around the implementation process. The regulator is reportedly open to discussions on the framework’s finer details.

The RBI had been approached for clarification on the November 12 meeting and the possibility of changes to the framework. It had not responded to the queries at the time of publication.

Banks Seek Changes to Provisioning Percentages

One of the main concerns among lenders is the provisioning percentage required under the new framework. Banks believe the proposed requirements could increase the amount of provisions they need to maintain against potential credit losses.

Higher provisioning can affect reported profitability because banks must set aside more money to cover expected loan losses. It can also influence capital levels, potentially affecting their ability to support future lending and business growth.

Bankers are therefore seeking a review of the provisioning calculations and greater flexibility in recognising the additional burden. Their preference is for a graded transition that gives lenders more time to adjust their financial statements and internal systems.

The November 12 discussions are expected to provide an opportunity for banks to present these concerns directly to the regulator.

SBI Chairman Says RBI Is Seeking Industry Feedback

On November 3, State Bank of India Chairman C S Setty said the RBI wanted to gather feedback from banks and was planning a meeting with bank chief executives to assess their preparedness for the transition.

Setty also indicated that discussions on certain aspects of the framework were continuing, with a working group engaging with the regulator to fine-tune the norms.

He said the regulator wanted to receive as much industry feedback as possible and remained open to discussions about the details of the guidelines and their implementation.

These discussions are important because banks have different levels of preparedness for adopting the new accounting requirements. Feedback from lenders could help identify operational challenges before the April 2027 deadline.

ECL Framework to Replace the Existing Incurred-Loss Model

Under the final ECL directions issued on April 27, 2026, banks will move from the existing incurred-loss provisioning model to a forward-looking expected credit loss approach from April 1, 2027.

Under the incurred-loss model, provisions are generally linked to credit losses that have already occurred or show evidence of impairment. The ECL framework requires banks to estimate potential future credit losses and recognise provisions based on expected risks.

This approach is intended to make loan-loss provisioning more forward-looking. Banks will need to assess the credit quality of their assets and consider possible changes in economic conditions when estimating future losses.

How the Three-Stage ECL Classification System Works

The new framework uses a three-stage classification system to determine how much banks must provision against their loans. The required provision depends on the credit risk associated with an asset.

• Stage 1: Banks must maintain provisions for 12-month expected credit losses. This applies to assets that have not experienced a significant increase in credit risk since initial recognition.
• Stage 2: Assets that have experienced a significant increase in credit risk require provisions for lifetime expected credit losses.
• Stage 3: Credit-impaired assets also require provisions for lifetime expected credit losses, reflecting the higher level of credit risk.

Banks must also incorporate forward-looking macroeconomic assumptions into their calculations. This means lenders will need to consider how economic developments could affect borrowers’ ability to repay loans.

The framework retains the existing 90-day norm for classifying loans as non-performing assets. Therefore, the change primarily concerns how banks estimate and recognise expected credit losses rather than replacing the existing NPA classification timeline.

Four-Year Transition to Protect Banks’ Regulatory Capital

The RBI’s directions include a four-year transitional arrangement to help banks manage the effect of additional ECL provisions on regulatory capital. Under this arrangement, lenders can add back a portion of the additional provisioning impact, net of taxes, to their Common Equity Tier 1 (CET1) capital.

The permitted add-back will gradually decline over the transition period, allowing banks to absorb the impact in stages.

The transitional arrangement is designed to cushion the immediate effect of higher provisions on banks’ regulatory capital. However, the gradual reduction in the permitted add-back means lenders will need to prepare for the full impact of the new provisioning system over time.

What Credit Risk Parameters Will Banks Need to Use?

The ECL framework requires banks to use specific credit risk parameters to estimate potential losses. These calculations will be based on three important measures:

• Probability of Default (PD): The likelihood that a borrower will fail to meet repayment obligations.
• Loss Given Default (LGD): The estimated loss a bank may face if a borrower defaults, after considering recoveries.
• Exposure at Default (EAD): The amount of money a bank expects to be exposed to when a borrower defaults.

By combining these parameters with forward-looking economic assumptions, banks will calculate expected credit losses and determine the provisions required for different categories of loans.

The new requirements will require lenders to strengthen their credit risk assessment processes, data systems and internal models to support more detailed calculations.

Are Indian Banks Ready for the April 2027 ECL Rollout?

Despite the transition period, concerns remain about banks’ operational readiness. A senior banker said that most lenders, including private and public sector banks, were not fully prepared to adopt the new accounting norms. Some banks with reporting obligations in other countries may already have experience with similar requirements.

For many lenders, the transition will involve changes to risk management systems, data collection, loan monitoring and financial reporting. Banks will also need to develop processes to estimate expected losses using historical information and forward-looking economic assumptions.

These preparations are important because the new framework will affect how lenders recognise potential credit losses and report their financial performance. Banks are therefore seeking sufficient time and regulatory clarity before the implementation deadline.

What the November 12 Meeting Could Mean for Banks

The upcoming meeting could help the RBI understand the concerns raised by lenders and assess whether additional implementation flexibility is needed. The main issues are expected to include provisioning percentages, the possibility of spreading additional provisions over multiple years and banks’ readiness for the transition.

However, discussions do not automatically mean that the central bank will change the existing directions. Any modification to the framework would depend on the RBI’s assessment and subsequent regulatory decisions.

For banks, the outcome will be important because the ECL framework could influence profitability, capital planning and lending capacity. The regulator will need to balance the industry’s implementation concerns with the objective of ensuring that banks recognise potential credit losses in a timely and appropriate manner.

Conclusion: Banks Seek a Smoother Transition to ECL Norms

The RBI’s November 12 meeting will be an important opportunity for banks to explain their concerns about the proposed ECL provisioning framework. Lenders are seeking a review of provisioning percentages and a graded approach to recognising additional provisions to reduce the immediate pressure on profitability and capital.

The new system is scheduled to take effect on April 1, 2027, replacing the incurred-loss model with a forward-looking approach based on expected credit losses. While the four-year CET1 transition arrangement provides some relief, banks still face significant preparation requirements.

The regulator’s response to industry feedback will be closely watched as lenders work towards adopting the new accounting standards. Until any changes are formally announced, the existing final ECL directions and their April 2027 implementation date remain the basis for banks’ preparations.