RBI to implement expected credit loss framework and Basel III norms from April 2027

The Reserve Bank of India (RBI) on Wednesday (October 1) proposed the implementation of the Expected Credit Loss (ECL) framework for banks, effective from April 1, 2027.

Announcing the measure during the fourth bi-monthly monetary policy review, RBI Governor Sanjay Malhotra said the central bank will provide a glide path of nearly four years to help banks adjust to higher provisioning requirements without disrupting credit flows.

The ECL framework, which applies to Scheduled Commercial Banks (excluding Small Finance Banks, Payment Banks, and Regional Rural Banks) and All India Financial Institutions (AIFIs), is designed to strengthen credit risk management and improve comparability of financial reporting across institutions.

Unlike the current provisioning regime, the ECL model requires banks to recognize potential credit stress earlier, allowing for a proactive approach to non-performing assets.

In addition, the RBI confirmed that revised Basel III capital adequacy norms for commercial banks will also become effective from April 1, 2027. These reforms aim to ensure system-wide resilience, maintain financial stability, and support sustainable credit growth.

Experts highlighted the significance of the move.

Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India), noted that alongside the ECL framework, other measures such as capital market exposure limits and large borrower norms are expected to enhance the ease of doing business in the financial sector while deepening lending and capital market activity.

He added that the immediate impact could be easing of money market rates, while long-term rates may remain range-bound.

Investment managers observed that the RBI’s approach reflects a carefully balanced stance, maintaining stability in policy rates while preparing the banking system for long-term prudential measures.

The central bank also revised macroeconomic projections, raising FY26 GDP growth to 6.8% from 6.5% and lowering headline inflation to 2.6% from 3.1%.

The RBI emphasised that the phased introduction of the ECL framework and Basel III norms will be non-disruptive, giving banks sufficient time to adjust provisioning, capital buffers, and reporting practices, thereby promoting a robust and resilient financial sector.Read about our editorial guidelines and ethics policy