RBI will implement the ECL-based provisioning system from April 1, 2027, with no extension.
Banks must recognise potential loan losses earlier, with lower risk weight for eligible retail loans and higher for riskier ones.
Transition support includes phased implementation, capital relief measures, and a three-year window for legacy loans.
The Reserve Bank of India (RBI) has said it will not delay the new system for handling bad loans, called the Expected Credit Loss (ECL) framework. This will start from April 1, 2027. Currently, banks set aside money only after a loan starts going bad.
Under the new system, they will have to estimate possible losses in advance and keep money aside earlier. The idea is to make banks more careful and better prepared for risks.
1 April 2026
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Under the new rules, some loans can be treated as retail loans and will be seen as less risky. These loans will attract a lower risk weight of 75%, which means banks don’t need to keep as much capital against them.
Which Loans Are Eligible?
To qualify, the loan must be given to individuals or small businesses with turnover up to ₹500 crore, must be a regular product like a home loan, education loan or term loan, and should not exceed ₹10 crore per borrower. Credit card dues that are fully paid on time will also be treated more favourably.
At the same time, the RBI has clearly said that some types of loans will not get this benefit. Most personal loans, unpaid credit card balances, and loans linked to stock markets, derivatives or real estate will be treated as riskier. Banks will have to keep more capital for these.
In terms of risk levels, safer retail loans will carry a 75% risk weight. Other loans that don’t qualify will usually have a 100% risk weight. Riskier loans, like unsecured personal loans and revolving credit card dues, will continue to have a higher risk weight of 125%.
The RBI has also kept the option to increase the risk level for certain banks if their loan quality gets worse.
Transition Support for Banks
To make the shift easier, the RBI has given banks some support. It has provided a gradual transition plan, allowed relief for the one-time impact on capital, and given banks three years to apply certain rules to older loans. Overall, this change is meant to make banks more prepared by making them recognise risks earlier instead of reacting later.
