Transitioning to ECL framework: A move towards expected loss-based norms

The forward-looking ECL-based allowance (or provision) is applied at origination and for all subsequent reporting periods to financial assets till derecognition

Recently, the Reserve Bank of India (RBI) announced that Indian commercial banks will have to start implementing the expected credit loss (ECL)-based provisioning norms from April 1, 2027, according to the International Financial Reporting Standards (IFRS). There will also be a transition path (till March 31, 2031) to smoothen the one-time impact of higher provisioning, if any, on their existing books (indicating prudential floors). The ECL norms will replace the ‘incurred loss’ model with an ‘expected credit loss’ model. Under the new norm, banks will have to adopt a forward-looking approach considering past events, current conditions and forecast information. This