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

Commercial banks with a 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.

- AATHIRA VARIER

During the monetary policy review meeting, RBI Governor Sanjay Malhotra said the transition to ECL framework from the current incurred loss framework would start from April 1, 2027. The 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 Finance Bank (SFB), RBL Bank, IDFC First Bank and IndusInd Bank.

They added, “It will also impact state banks on existing loans. Three years ago, State Bank of India (SBI) had disclosed a shortfall of ₹25,000 crore for existing loans, which in our view would have reduced to below ₹20,000 crore.”