Indian Banks Adequately Capitalised as RBI Finalises Expected Credit Loss Framework: Fitch Ratings

According to the ratings agency, the framework is scheduled to come into effect from April 1, 2027, marking a major regulatory shift in the recognition and provisioning of credit losses across the banking system.

Fitch Ratings expects the average Common Equity Tier 1 (CET1) ratio of the Indian banking system to decline by 30 basis points in the financial year 2027–28 as a result of the implementation of the new framework. The agency further projects that the impact will gradually widen, reaching approximately 80 basis points by 2022–23, assuming banks utilise the RBI’s four-year transition period for full implementation.

The report highlighted that the initial provisioning levels maintained by banks are higher than previously anticipated, thereby reducing the overall adverse impact of the new regulatory requirements. This stronger-than-expected provisioning buffer is seen as a key mitigating factor in absorbing the transition effects of the ECL framework.

Fitch Ratings noted that the introduction of the framework aligns with its positive outlook on the BB+ operating environment score assigned to Indian banks. The agency indicated that the regulatory enhancement is expected to strengthen credit discipline and improve risk assessment practices within the sector.

The implementation of the ECL framework represents a structural shift in banking supervision in India, reinforcing the sector’s resilience while ensuring greater alignment with global accounting and prudential standards.