‘ECL framework proposed to be implemented from April 1, 2027’

New Delhi: To enhance the resilience of the financial sector, the Reserve Bank on Wednesday announced that the expected credit loss (ECL) framework for provisioning is proposed to be made applicable to all financial institutions from April 1, 2027.

Announcing the fourth bi-monthly monetary policy, RBI Governor Sanjay Malhotra said the ECL framework of provisioning with prudential floors is proposed to be made applicable to all Scheduled Commercial Banks (excluding Small Finance Banks (SFBs), Payment Banks (PBs), Regional Rural Banks (RRBs)) and All India Financial Institutions (AIFIs) with effect from April 1, 2027. “They will be given a glide path (till March 31, 2031) to smoothen the one-time impact of higher provisioning, if any, on their existing books,” he said. The guidelines are expected to enhance credit risk management practices, promote better comparability of reported financials across institutions, he added.

In January 2023, the RBI came out with draft guidelines for the adoption of the expected credit loss approach for credit impairment.

Under the ECL norms, banks will be required to classify financial assets (primarily loans, including irrevocable loan commitments) into one of the three categories – Stage 1, Stage 2, and Stage 3, depending upon the assessed credit losses on them at the time of initial recognition as well as on each subsequent reporting date and make necessary

provisions.