The RBI plans to implement ECL for banks on new loans from April 2027 and on existing loans from April 2027 to March 2031 | Photocredit: Danish siddiqui
The direction of the reserve Bank of India (RBI) to banks to transfer from the loss provision model to the expected credit loss (ECL) will be most affected on microfinancing -oriented banks, experts say. Bandhan Bank, Indusind Bank, RBL Bank, Au Small Finance Bank and IDFC First Bank have more exposure to the Microd loan segment.
“The RBI is planning to implement ECL for banks on new loans from April 2027 and on existing loans from April 2027 to March 2031. ECL will have an influence on MFI banks: Au Small Finance Bank, RBL Bank, IDFC First Bank, Indusind Bank. It will also have an influence on Staatsbanken on existing loans,”
The ECL model assesses the loss that will probably take place on a loan or portfolio of loans. It is used to estimate potential future losses on financial assets and to recognize those losses in the financial statements. It represents the probability -oriented estimate of the present value of all cash shortages from an instrument. Banks are usually witnesses of higher delinquencies in the micro -loan segment and can therefore be confronted with higher facilities for such loans in the implementation of ECL standards.
Large banks
The largest lender State Bank of India (SBI) of the country had previously said that it should create around £ 25,000 crore in provisions to meet the ECL standards, and according to Nuvama the determination requirement has now been reduced to less than £ 20,000 crore. Among other things, large private banks will probably be the most affected because of the lower buffer, and Axis Bank will see a very mild impact.
The RBI said on Wednesday that it will soon spend ECL concept standards for banks and all financial institutions in India to coordinate the facilities of Indian banks to worldwide banks.
According to IIFL Capital Securities, the four-year slide path will facilitate the one-off impact of additional facilities for banks for compliance with ECL standards. Based on the back-of-the-envelope calculations of the brokerage, it anticipates additional provisions of 1-2 percent of the loans for the public sector and medium-sized banks, while only a minimal to no impact for the large private banks with higher buffers for unforeseen events.
Dhruv Parikh, partner, financial services Risk Consulting, EY India, said that the shift from Indian banks to ECL module will not only reinforce the resilience and bring the facilities in accordance with the worldwide standards, but also force banks to reconsider how credit risk is rated and managed.
“The implications will extend to product and price strategies, early warning signals (EWS), collections and recovery planning. Although the Phased Roll-Out offers respiratory space, banks must invest in data and governance options to enable ECL seamlessly into their operational model.
Published on October 3, 2025
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