RBI Sets 2027 Start for ECL Provisioning, Unveils Broader Banking Prudential Reforms

Overview

• The Expected Credit Loss framework with prudential floors will apply from April 1, 2027 to Scheduled Commercial Banks, excluding small finance, payments and regional rural banks, as well as All India Financial Institutions, with a transition path to March 31, 2031.
• Under ECL, banks must classify assets into Stage 1, Stage 2 and Stage 3 and book forward‑looking provisions at initial recognition and at each reporting date.
• The RBI also proposed revised Basel III capital norms effective April 1, 2027, with a draft Standardised Approach for Credit Risk to be issued shortly, while market‑risk rules remain under finalisation and operational‑risk standards are already in place.
• A risk‑based model for deposit insurance premiums is proposed with the current flat rate as a ceiling, with detailed norms to be issued shortly and effectiveness targeted for the next financial year.
• The regulator dropped a proposed curb on business overlap between banks and group entities, and SBI Chairman C.S. Setty said the lender is ready for ECL adoption and expects no capital strain, welcoming permission for banks to finance M&A.