Anticipated credit score losses will assist banks get a deeper understanding of their portfolio combine
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The Reserve Financial institution of India’s draft pointers on anticipated credit score loss (ECL) for banks, if applied as is, may lead to lenders re-pricing loans upward and re-draw their lending technique, consultants say.
“Anticipated credit score losses will assist banks get a deeper understanding of their portfolio combine and assist them to both worth their portfolio proper to issue within the dangers or rebalance their portfolio in the direction of shoppers and merchandise that supply greater threat adjusted returns. Banks are already considering on this path and with the ECL implementation offering the correct information factors, we’ll see these adjustments occurring,” stated Vivek Iyer, accomplice and nationwide leader-financial companies, Grant Thornton Bharat.
businessline earlier reported that the regulator may think about approving bankers’ request to decrease the provisioning requirement on stage-2 loans to 1-3 per cent from proposed 5 per cent underneath the draft ECL pointers. Bankers requested to rethink the proposal as they presently make solely 0.4 per cent provision for most traditional and burdened belongings. They are saying in segments like dwelling or car loans, there’s a 50 per cent common restoration charge from overdue and non-performing belongings (NPAs). Stage-2 advances are basically loans which might be overdue for 61-90 days.
A mindset change
Abizer Diwanji, Founder at NeoStart Advisors, says ECL will likely be a serious mindset change for banks whereby they must analyse information and estimate ECL foundation historic data equivalent to commonplace deviations, volatility in bond markets, amongst different elements. India didn’t implement IFRS norms for banks in previous as lenders weren’t adequately capitalised and had greater NPAs, which isn’t the case presently.
“When an anticipated loss is to be computed for accounting, even when banks give loans, they are going to begin computing anticipated loss on that publicity. And they’re going to rightly so construct it into worth. So, the credit score markets will grow to be extra in the direction of what actual risk-based pricing needs to be reasonably than what it’s in the present day, which is sort of arbitrary,” he stated.
A senior PSU banker stated mortgage charges might rise by 5-10 foundation factors (bps) upon full implementation of ECL norms for big banks and better for smaller and mid-size friends. Small- and mid-size lenders with greater publicity to unsecured loans might transfer in the direction of secured loans extra, he stated.
Printed on December 24, 2025
