India central bank says expected credit loss rules for banks to be effective April 1, 2027

MUMBAI: The Reserve Bank of India on Monday issues final rules for asset classification and provisioning by lenders, after a draft set of proposals was issued in October last year.

The new rules, the RBI said, will come into effect from April 1, 2027 despite requests from banks to push back the date of implementation.

The rules introduce a “staging framework” for asset classification under the Expected Credit Loss (ECL) approach.

The ECL framework is forward looking and asks banks to build buffers based on the likely losses an asset will incur.

To measure “expected credit losses”, a bank shall assess whether the credit risk on a financial instrument has increased significantly since initial recognition, the RBI said.

Where such increase has not occurred, the bank shall recognise a loss allowance based on 12-month expected credit losses.

Where such increase is determined to have occurred, the bank shall recognise a loss allowance, estimated based on lifetime expected credit losses.

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The ECL framework will classify assets into three buckets - stage 1, stage 2, stage 3. Stage 1 assets are those where there is no significant increase in credit risk. Stage 2 assets are those that may have seen an increase in credit risk but are not “credit impaired”. Stage 3 assets are those that are credit impaired.

The new rules retain existing norms for classification of non-performing assets (NPAs), which classify an asset as an NPA when payments are overdue by 90 days.