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Banks request RBI for more time to implement new norms
May 22, 2023
Lenders have sought a one-year extension from the Reserve Bank of India (RBI) for implementation of the Expected Credit Loss (ECL)-based loan loss provisioning framework.
In January this year, the RBI came out with a draft guidelines proposing adoption of expected credit loss approach for credit impairment. It said the banks will be given a one year period after the final guidelines are released for implementation of expected credit loss approach for loss provisioning.
Though the RBI is yet to announce the final guidelines on ECL norms, some of the rating agencies have said that final norms on this may be notified by FY2024 for implementation from April 1, 2025.
“We have requested the regulator to allow us a little more time to prepare ourselves for this,” Indian Banks Association (IBA) Chief Executive Sunil Mehta told reporters on the sidelines of a Fintech event on Tuesday. “We have requested them (the RBI) for one more year,” Mehta said, when asked about the exact time lenders have requested the RBI.
He, however, said that in the “worst case scenario”, the banking system is gearing up for the switch to the new system. “The banking sector is already geared up, few of the banks have already developed their systems (and) have got their data in place on which they can design their ECL-based risk models,” he added. Currently, banks are required to make loan loss provisions based on an “incurred loss” approach. This means that loan loss provisioning happens much later, which can lead to an increase in credit risk for banks.
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