RBI’s New Credit Loss Rules to Have Limited Impact on Banks

In a big relief to banks, the Reserve Bank of India (RBI) has proposed that the new rules for credit loss provisions will come into effect from 1 April 2027. The central bank has also allowed a four-year transition period, giving banks time until 31 March 2031 to make additional provisions for their existing loans; Economic Times reported.

The new framework, known as the Expected Credit Loss (ECL) model, will replace the current system where banks make provisions only after a loss has occurred. Under the proposed rules, 100% provisions must be made against unsecured loans one year after they are classified as credit impaired, while other loan categories will require full provisioning after four years.

The RBI’s draft guidelines were announced following its monetary policy review , and the regulator has invited public comments on the proposals until 30 November.

Commenting on the development, State Bank of India (SBI) Chairman C.S. Setty said the long transition period would soften the impact on banks’ balance sheets. He also confirmed that SBI is technologically prepared to implement the new norms, with the necessary models and systems already in place.

Experts believe the gradual rollout will help banks adapt smoothly to the new provisioning standards without disrupting their financial stability.