Glide path for ECL regime, Basel-III norms on capital, risk-tied deposit insurance

The central bank has proposed a series of measures to enhance the resilience of India’s banking system, including giving more time to shift to the expected credit loss (ECL) regime, aligning with Basel norms on capital adequacy, dropping a plan to prevent banks and group entities in overlapping businesses, and a risk-based model to levy insurance premiums for deposit insurance.

- Srushti Vaidya & Neha Joshi

Deposit insurance premium to be linked to bank safety.

In January 2023, the Reserve Bank of India (RBI) had proposed a new system in which banks would anticipate loan losses and keep aside funds for them in advance, in a departure from the current practice of making provisions after the default. In a relief for banks, RBI on Wednesday proposed to roll out ECL beginning April, 2027, and a glide path till 31 March, 2031 to smoothen the onetime impact of higher provisioning.

The apex bank also proposed to make the revised Basel III capital adequacy norms effective for commercial banks from | April, 2027. Under a standardized approach towards credit risk in the works, the proposed lower risk weights on certain segments are expected to reduce overall capital requirements, particularly for MSMEs and residential real estate, including home loans.

The RBl also proposed a new model of deposit insurance, where safer banks will pay less premiums while weaker ones pay relatively more. The risk-based model would be a departure from the current practice, where banks pay a uniform 12 paise for every ₹100 of deposits. The shift from the decades-old flat-rate system is designed to incentivize sound financial management, RBI said.