Axis Bank expects the new Expected Credit Loss (ECL) framework proposed by the Reserve Bank of India (RBI) to have a negligible immediate impact on its financials, even as the industry begins assessing the implications of the transition.
CFO Puneet Sharma said the only likely effect is a shift in provisioning from outstanding to exposure, and on the bank’s net worth basis at the transition date, the impact is expected to be minimal. He added that while the bank is preparing pro forma financials internally, it will wait for the final contours of the circular before providing a detailed assessment.
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The RBI draft, released recently, proposes moving from the current incurred loss model to an ECL-based provisioning framework from April 1, 2027, with a four-year transition period until March 2031.
Under the framework, banks will assess credit risk using Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD), classifying assets into three stages: Stage 1 (12-month ECL), Stage 2 (lifetime ECL if risk has increased), and Stage 3 (lifetime ECL for credit-impaired assets).
Provisioning for Stage 2 assets is proposed to rise by roughly 5 percent, while Stage 1 and Stage 3 provisions remain largely unchanged. Transitional provisions as of March 2027 will be adjusted to CET1 capital.
Sharma noted that Axis Bank’s initial read is positive, particularly as the framework is expected to reduce risk weights for certain portfolios, a development that could benefit the bank.
“Directionally, the circular is net positive for us,” he said, emphasising that a holistic assessment is underway before final conclusions.
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