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ECL (expected credit loss) framework - RBI
What it is
RBI's final Directions of 27 Apr 2026 replacing incurred-loss IRACP provisioning with a forward-looking Expected Credit Loss model from 1 Apr 2027, aligning India with IFRS 9. It applies to scheduled commercial banks and AIFIs, excluding SFBs, payments banks and RRBs
Assets are staged 1 to 3 by whether credit risk has risen significantly since origination; the 90-day NPA definition is retained, and a glide path to 31 Mar 2031 spreads the one-time hit
Impact on industries
- The binding change is Stage 2 - loans 60-90 days overdue attract a minimum 5% provision against ~0.4% today, and RBI declined requests to soften the floors
- Provisioning becomes model-driven - PD, LGD and EAD models with macro overlays, board oversight and data infrastructure, inside a tight one-year runway
- MSME lending is most exposed, since weaker documentation and volatile cash flows produce higher modelled PDs, tightening eligibility or repricing
- Earnings become less cliff-edged - recognising losses earlier beats a sudden slippage-driven charge, and comparability with global peers improves