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ECL (expected credit loss) transition glide path
What it is
The transition relief within RBI's Expected Credit Loss framework. The one-time increase in provisions on the existing book at 1 Apr 2027 can be spread to 31 Mar 2031 rather than taken in a single year
This addresses the stock of provisions on day one; the flow of ongoing ECL charges thereafter is recognised normally
Impact on industries
- Prevents a capital shock at transition, letting banks absorb the day-one increase out of earnings over five years instead of a single hit to net worth
- Capital adequacy is comfortable sector-wide, so with the glide path most banks can absorb the change without raising equity
- It smooths the stock but not the flow - once transitioned, Stage 2 provisioning at a 5% floor raises the run-rate credit cost permanently
- Comparability suffers during the transition, since banks amortising different day-one amounts over different schedules will report credit costs that are not like-for-like