Banks say new RBI stress norms are fine: Is it a smooth transition ahead for SBI, ICICI Bank, HDFC Bank, others?
As India's central bank proposes a new expected credit loss model, major players like SBI, HDFC Bank, Axis Bank and other lenders reveal their readiness to adapt with limited impact on their finances. With a phased five-year glide path, bank executives project a comfortable transition.
Mumbai: Large banks State Bank of India (SBI), HDFC Bank, and Axis Bank as also smaller public sector lenders believe they can easily transition to a new credit loss model proposed by India's central bank under which banks have to recognize stress much earlier.
Analysts bet that private lenders will fare better.
Senior bankers said lenders can manage the transition comfortably many even before the five-year glide path ends in 2032. They believe that strong profitability will help banks tide over demands that extra provisions will make on them. In fact, even by a Reserve Bank of India (RBI) analysis published in June, adequate high quality equity capital, declining loan losses and credit costs, and solid profitability lend credibility to the soundness of the banking system in India.
Earlier in October, RBI had floated a draft circular that lays out a transition from the current “incurred loss" provisioning rule to a forward-looking expected credit loss framework for scheduled commercial banks, alongside revisions in credit-risk classification and risk weights.
The draft framework proposes that from April 2027, all scheduled commercial banks classify assets into three stages and make forward-looking provisions based on potential credit losses. It allows banks a five-year glide path, reducing the initial provisioning shock by phasing the capital adjustment.
The so-called expected credit loss (ECL) model proposed by the regulator, where banks have to recognize stress much earlier, is in contrast to the existing regime where banks make provisions after the losses are incurred.
No profit impact
Top lenders including SBI, HDFC Bank, ICICI Bank, and Axis Bank as also leading public sector banks such as Punjab National Bank, Indian Bank, and Indian Overseas Bank, have all indicated that they are technologically and financially prepared to make the shift with a marginal impact on balance sheets.
"At an aggregate level, we feel comfortable and we feel that we will be ready for implementing at a time that RBI stipulates and takes it to life but the final details of that, we need to wait so that we can conclude on one number or the other," Srinivasan Vaidyanathan, chief financial officer, HDFC Bank told reporters on 18 October.
ICICI Bank is well prepared for the transition, executive director Sandeep Batra said during the lender's Q2 earnings call on 18 October, adding that he does not believe these measures will materially impact the lender's profit or capital at this point of time.
Other private lenders have echoed similar views. “Given where our provisioning policies are, we do believe that we are adequately provided for the transition," Puneet Sharma, chief financial officer, Axis Bank said last week.
The optimism of bankers is backed by analysts as well.
With the change starting only in April 2027 and given the five-year transition period, Bernstein Research expects most banks to manage the transition. It believes that well-capitalized private sector banks are better placed while public sector banks and those with higher exposure to corporate and unsecured portfolios may face greater provisioning pressures.
Bernstein said that HDFC Bank and ICICI Bank are the best placed, supported by healthy contingent buffers as compared to their peers – Axis Bank, Kotak Mahindra Bank and IndusInd Bank – while state-owned lenders could see higher impact due to relatively thinner provisioning coverage.
As of June 2025, HDFC Bank and ICICI Bank had provisioning buffers of around 1.8% and 1.7% of average advances, respectively, compared to 0.5–0.7% for many public sector banks, the report said.
Likewise for PSBs
That said, India’s public sector banks (PSBs) have been more forthcoming with projections on the impact of ECL.
For instance, Punjab National Bank's chief executive Ashok Chandra told analysts that the bank had already computed its ECL impact across all loan stages and found it manageable. “Overall, all three stages put together, our rough estimate is in the range of 75–80 basis point impact on our CRAR (capital adequacy ratio). And we are well prepared for that," he said.
Indian Overseas Bank chief executive Ajay Kumar Srivastava estimated that the bank may require an additional ₹2,700–2,800 crore in provisions, but said it was well placed to provide for this ahead of the five-year schedule.
“I think we will very comfortably be able to handle that if at all the ₹2,700 crore figure comes. We will be generating sufficient and handsome net profit before the time it gets implemented," he told Mint in an interview.
Peer lender Indian Bank also said that the impact will be limited. “I can assure you one thing, the impact will not be very huge. We will be able to manage. We may not require five years," Binod Kumar, chief executive, Indian Bank told Mint.
Global rating agency S&P Global Ratings said on 13 October that the implementation timeline and strong capital positions across the sector would help banks absorb the shift smoothly.
“Our scenario analysis suggests banks can absorb the incremental provisioning as they prepare for the switch," S&P said, adding that banks benefit from 'solid pre-provision operating profits and healthy capital buffers.'
SBI chairman CS Setty had said earlier in October that he expects a limited impact from this shift on the bank's balance sheet, citing the long transition period under the proposed norms.
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