In the ‘Directions on Asset Classification, Provisioning, and Income Recognition for Commercial Banks’, the RBI said banks had given feedback seeking more time for the transition as they need to build databases and models, and upgrade systems.
Declining to accept the feedback to the draft first issued on October 7, 2025, the RBI said, “Banks have been provided a one-year timeline to prepare their internal systems for implementation of the new framework.”
At present, banks make a provision against an asset once the loss is incurred, while under ECL, they will move to a much more proactive system. It is widely believed to increase the provisions in the banking system.
The central bank also said on Monday that it has provided some measures to ease the transition to ECL, including the provision of a calibrated transition framework, including transitional arrangements for one-time capital impact on account of ECL transition, a three-year timeline for application of Effective Interest Rate (EIR) on legacy loan accounts and guidance provided on key implementation issues.
Similarly, the RBI has also not accepted feedback to omit a reference to non-performing assets (NPAs) as non-feasible.
“NPA classification is an objective and well-established framework that is widely understood and recognised by stakeholders, including lenders and borrowers. It is also embedded across multiple statutory and regulatory frameworks,” the RBI said.The RBI said it had received a feedback wherein detailed guidance was sought to implement the framework, but declined the same stating that ECL is iherently principle-based and requires institution-specific risk assessment.
“Banks differ materially in terms of portfolio composition, business models, customer segments, data availability, etc., and therefore, a uniform and highly granular implementation framework will not be appropriate across all banks,” it said.
The RBI has also accepted or partially accepted the feedback it has received on some of the suggestions first proposed in the draft by making necessary changes in the final directions..
It accepted the feedback of maintaining the floor for individual housing loans under Stage 1 at par with the existing standard asset provisioning but reducing the same to 0.25 per cent.
A separate floor category has been created containing exposures for direct lending to state government and specific state government- guaranteed exposures, and a Stage 2 Floor at 2.5 per cent has been prescribed as per the feedback received, the RBI said.
In the case of Purchased or Originated Credit Impaired Assets (POCI), it was submitted that such assets are not considered in any of the stages globally and classification as Stage 1 suggested in the draft may not be appropriate.
“The guidelines have been amended to clarify that POCI shall be treated as a separate category with recognition of lifetime ECL,” the RBI added.
There have been some partial acceptances of feedback, like in the case of EIR, where the submission for prospective application of EIR has not been accepted, but a timeline of three years is being provided to the banks for transition to EIR-based income recognition for loans outstanding as on the date of transition. PTI