The Reserve Bank of India has issued new Directions for commercial banks on asset classification, provisioning and income recognition that introduce an Expected Credit Loss (ECL) staging framework and forward-looking provisioning while retaining the existing norms for identifying non-performing assets (NPAs). The framework also adopts the Effective Interest Rate (EIR) method and replaces the current income recognition, asset classification and provisioning Directions from the commencement date. The Directions apply to commercial banks (banking companies other than Small Finance Banks, Payment Banks and Local Area Banks, corresponding new banks, and the State Bank of India) and set detailed requirements for NPA classification, ECL measurement and governance, model risk management, disclosures and regulatory reporting. ECL applies to a broad set of instruments including loans, relevant debt securities, commitments and off-balance-sheet credit exposures, using a three-stage approach with a rebuttable presumption of significant increase in credit risk at more than 30 days past due (and 60 days for certain revolving-limit breaches). The regime introduces regulatory backstops including product- and stage-wise prudential provisioning floors, a minimum 12-month Probability of Default floor of 0.03%, and regulatory Loss Given Default values where banks cannot reliably estimate LGD, alongside governance expectations including board-level oversight and structured model lifecycle, validation and monitoring. The Directions take effect from 1 April 2027, with banks required to fair value the entire loan portfolio on transition and adjust differences to opening retained earnings rather than profit and loss. The first ECL reporting is based on financial position as at 30 June 2027, with previous-year comparatives required from 31 March 2028, while quarterly unaudited financial results continue under the existing IRACP framework up to 31 December 2027. A phased transition is set for applying EIR to loans outstanding on 31 March 2027 no later than 31 March 2030, and a regulatory capital transition allows optional Common Equity Tier 1 add-backs of the initial provisioning uplift, scaled from four-fifths in FY 2027-28 down to one-fifth in FY 2030-31, through the transition period ending 31 March 2031.
Reserve Bank of India 2026-04-27
Reserve Bank of India issues commercial bank directions introducing Expected Credit Loss provisioning and an Effective Interest Rate regime from 1 April 2027
The Reserve Bank of India has issued new Directions for commercial banks introducing an Expected Credit Loss staging framework with forward-looking provisioning and the Effective Interest Rate method, while retaining existing norms for identifying non-performing assets. The regime sets requirements for NPA classification, ECL measurement and governance, model risk management, disclosures and regulatory reporting, including prudential provisioning floors and a minimum 12‑month Probability of Default floor of 0.03%. The Directions take effect from 1 April 2027 with transitional arrangements for ECL implementation and regulatory capital, including phased Common Equity Tier 1 add-backs of the initial provisioning uplift through 31 March 2031.