Indian banks well-placed to transition to expected credit loss provisioning, Fitch says

Synopsis

Indian banks are well-prepared for the new expected credit loss framework. Fitch Ratings confirms sufficient capitalisation. The framework starts April 1, 2027. A slight decrease in common equity tier 1 is anticipated. Banks can use a four-year transition period. Initial provisions are higher than forecast. This supports a positive outlook for Indian banks.

MUMBAI, - Indian banks are sufficiently capitalised to transition to the expected credit loss (ECL) framework, which has now been finalised by ‌the ⁠Reserve Bank ⁠of India, Fitch Ratings said on Thursday.

The new framework will come ​into force starting April 1, 2027.

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The ratings ​agency expects the ⁠banking system's ‌average common equity ​tier ​1 (CET1) to decrease ⁠by 30 basis points in the ​financial year 2027-28.

The ​decline will gradually extend to about 80 basis points by 2022-23 if banks use the RBI's ‌four-year transition period, Fitch says.

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Starting provisions of ​banks ​are higher ⁠than expected, lowering the impact of the new rules.

The framework ​supports Fitch's positive outlook on the BB+ operating environment score for Indian banks.

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