ECL norms to have bigger impact on banks with higher unsecured loans

Expected credit loss framework to replace incurred loss model from April 2027; analysts say lenders with higher unsecured retail and microfinance exposure will see bigger provisioning impact

Commercial banks with higher proportion of unsecured loans — like personal loans, credit card and microfinance exposure — are likely to have a higher impact of the Reserve Bank of India’s (RBI’s) expected credit loss (ECL) norms, according to analysts.

 

During the monetary policy review meeting, RBI Governor Sanjay Malhotra announced that the transition to ECL framework from the current incurred loss framework will start from April 1, 2027.

 

RBI is yet to announce draft ECL norms. A discussion paper was floated in early 2023.

 

According to analysts at Nuvama, ECL will impact microfinance institution (MFI) banks like AU Small