Fitch says the 21 reforms announced by RBI are overall positive for the Indian financial sector | Photo credit: FRANCIS MASCARENHAS
Indian banks will strengthen their financial resilience under the Reserve Bank of India’s (RBI) proposed regulatory reforms, global rating agency Fitch Ratings said in a report released on Sunday. In its latest analysis titled ‘Indian Banks Strengthen Resilience Under Central Bank Reforms’, Fitch said the proposed measures would boost the sector’s ability to withstand economic shocks and better align domestic regulations with global banking standards.
It states that the 21 reforms announced by the central bank are generally positive for the Indian financial sector. An improved regulatory framework will strengthen the banks’ operating environment. The RBI plans to implement a forward-looking expected credit loss (ECL) framework from April 1, 2027, transitioning from the existing incurred loss provisioning system and aligning India with international standards. Banks will be allowed to smooth the adjustments in their provisions until March 2031. Profitability is likely to take a modest hit due to higher credit costs under ECL.
Still, Indian banks’ VR scores in terms of profit and profitability are unlikely to be affected as banks should be able to absorb these without operating profit to risk-weighted asset (RWA) ratios falling significantly below Fitch’s current forecasts,” Fitch said. It added: “Banks with stronger capital buffers and prudent risk management practices will find the transition easier to manage.
“According to Fitch, Indian banks are entering this phase of reform from a position of relative strength, supported by improved asset quality, steady profitability and robust capitalization from the financial year ending March 2025. The rating agency added that the RBI’s broader agenda to enhance risk sensitivity, transparency and resilience will ensure long-term financial stability in the banking system would improve, even if this would temporarily depress short-term profits for some institutions.
Fitch further noted that while smaller or state-owned banks could face transition challenges, the reform measures would ultimately strengthen the system’s ability to absorb credit losses and manage cyclical risks.
Published on October 13, 2025
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