ECL: A strategic leap for Indian banking

By embracing tech, analytics, and cross-functional collaboration, banks can transform provisioning from a technical exercise into a lever for growth

- DHRUV PARIKH PRIYANKA SHETTY

CLOSE ON THE heels of the Monetary Policy Committee’s announcement on October 1 to implement the expected credit loss (ECL) framework by fiscal year 2027 for banks, draft guidelines detailing the proposed ECLmethodology were issued on October 7. This initiative is more than a regulatory update; it signifies a strategic evolution in how Indian banks assess, manage, and communicate credit risk. By adopting a forward-looking expected loss approach aligned with global standards, Indian banks would position themselves for greater resilience, transparency, and agilityina dynamic economic environment.

Globally, the transition to International Financial Reporting Standard 9 has transformed banking landscapes, with lenders reporting significant increases in provisions—ranging from 20% to 50%—and declines in capital ratios such as the Common Equity Tier 1 (CET1) by 0.06% to 1.36%. These changes have prompted financial institutions to rethink credit strategy, portfolio management,and risk governance. For India, the upcoming ECL framework presents an opportunity to modernise credit risk management while reinforcing market confidence in the banking system.