ENA Sectors 2026-04-28 15:04:03 <p><span style="font-size:14px"><strong>New Delhi, Apr 28 (KNN)</strong> The Reserve Bank of India (RBI) is set to implement an expected credit loss (ECL)-based provisioning framework for banks from April 2027, marking a shift from the current incurred loss approach to a more forward-looking system of recognising credit risk.</span></p> <p><span style="font-size:14px">The proposed framework aims to strengthen the resilience of the banking sector by requiring lenders to make provisions based on expected future losses rather than waiting for defaults to occur, reported Business Standard.</span></p> <p><span style="font-size:14px">This transition is expected to align Indias banking regulations with global best practices in risk management.</span></p> <p><span style="font-size:14px"><strong>Improved Transparency, Higher Initial Provisioning </strong></span></p> <p><span style="font-size:14px">Under the ECL framework, banks will need to assess credit risk at an earlier stage and set aside provisions accordingly, taking into account macroeconomic conditions and borrower-specific factors. </span></p> <p><span style="font-size:14px">This is likely to improve transparency in financial reporting and enhance the overall stability of the financial system.</span></p> <p><span style="font-size:14px"><strong>Banks Get Time to Prepare, Strengthen Systems </strong></span></p> <p><span style="font-size:14px">The RBI has indicated that the implementation timeline provides sufficient runway for banks to upgrade their internal systems, data capabilities, and risk assessment models. </span></p> <p><span style="font-size:14px">Lenders are expected to undertake significant preparatory work, including strengthening credit monitoring mechanisms and building robust data infrastructure.</span></p> <p><span style="font-size:14px">The move may initially lead to higher provisioning requirements for banks, which could have an impact on profitability in the short term. </span></p> <p><span style="font-size:14px">However, over the long term, it is expected to improve asset quality recognition and reduce the risk of sudden spikes in non-performing assets (NPAs).</span></p> <p><span style="font-size:14px">The transition to the ECL-based system is part of the RBIs broader efforts to enhance prudential regulation and ensure that the banking sector remains well-capitalised and better equipped to absorb potential financial shocks.</span></p> <p><span style="font-size:14px"><em><strong>(KNN Bureau)</strong></em></span></p> 45947 https://knnindia.co.in/news/newsdetails/sectors/rbi-shifts-to-expected-credit-loss-model-to-strengthen-bank-resilience 2026-04-28 15:04:03 knnindia.co.in