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BankingNABARD / RBI

RBI Draft ECL Provisioning Norms: Effective April 2027

8 October 20251 min read
BANKING & FINANCERBI Draft ECLProvisioningNorms: EffectiveApril 20278 October 2025safalsetu.com

Why in the news

RBI released draft frameworks on 7 October 2025 to strengthen prudential regulation and credit risk handling, led by ECL-based provisioning for stressed loans and securities.

Key facts

  • Moves from incurred-loss to forward-looking ECL, matching IFRS 9.
  • Start: 1 April 2027; four years to 31 March 2031 for the existing book.
  • Inputs: PD, LGD and EAD.
  • The gap versus current provisions (as of 31 March 2027) is added back to CET1 capital.
  • NPA classification stays as is; only provisioning follows ECL.
StagePositionECL
1No significant rise in credit risk12-month
2Significant rise in credit riskLifetime
3Credit-impairedLifetime

Exam angle

  • PD, LGD, EAD; banks must apply model governance principles.

Test yourself

1. From which date does RBI's draft Expected Credit Loss provisioning framework propose to take effect?

The draft frameworks are proposed to apply from 1 April 2027.

2. Under the draft ECL norms, which stage uses lifetime ECL for credit-impaired assets?

Stage 3 covers credit-impaired assets with lifetime ECL.

3. The draft ECL provisioning model of RBI aligns Indian banks with which global standard?

The ECL approach aligns with IFRS 9.

This topic is part of Daily Current Affairs 8 October 2025 (15 topics).

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