ICICI Bank ready to move to ECL framework, waiting for RBI guidelines, says executive director

Under the ECL framework, banks will have to assess expected loss on their overall financial assets and make provisions after assessment, rather than making it after the loan turns into a non-performing asset (NPA).

A loan becomes an NPA if no repayment is made of interest or principal for a period of 90 days.

Also read: Expected credit loss is fiction for now; SBI equipped to deal with it: SBI Chairman Dinesh Khara

In May 2023, Dinesh Khara, Chairman of State Bank of India (SBI) said that for now, ECL is fiction.

“ECL is fiction and if at all it becomes a reality, we are very well equipped to deal with them without having any impact on our balance sheet."

Khara, while addressing a post-results press conference in May 2023, also said that the bank is well equipped to handle the ECL norms.

Under the ECL norms, banks will be required to classify their financial assets into three categories – Stage 1, Stage 2, and Stage 3. The categorisation has to be done on the bank’s assessment of any credit loss on the assets.

Also read: Explainer | How does RBI’s new rules on expected loss-based approach work? All you need to know

These norms are meant for only scheduled commercial banks, excluding regional rural banks.

The central bank has allowed banks to design and implement their own models for measuring expected credit losses for the purpose of estimating loss provisions in line with the proposed principles.