SBI sees limited impact from ECL norms, focuses on stronger collections

SBI sees minimal ECL impact, aims to strengthen recovery systems

State Bank of India (SBI) Chairman CS Setty said the bank remains confident about managing the transition to the Reserve Bank of India’s (RBI) proposed Expected Credit Loss (ECL) framework, describing it as “too premature” to estimate any meaningful impact on the balance sheet right now.

Speaking after the lender’s second-quarter results, Setty said SBI expects the overall effect of the new provisioning rules to be limited, thanks to the extended roadmap outlined by the regulator. “On the ECL front, we need to be a little patient. I did mention earlier that the impact on our balance sheet would be limited for two reasons. One is the long roadmap that has been given to us,” Setty said.

The RBI released a draft circular proposing a move from an incurred-loss-based model to an expected-loss-based system for credit provisioning. Under this approach, banks will have to classify financial assets into three stages based on credit risk. Stage one will carry a 12-month expected loss provision, while stage two and three—where loans show significant deterioration or are credit impaired—will require lifetime provisioning. The central bank also proposed a five-year glide path till March 31, 2031, to allow a smooth and non-disruptive transition.

Setty said SBI plans to fully utilise this transition window to ensure that any provisioning impact is absorbed gradually. “We will wait for the final guidelines to understand the exact implications. Whatever the impact, we will take that four-year roadmap given to us to ensure that the balance sheet is not impacted in one go,” he explained.

He added that the main area of sensitivity lies in the SMA-1 and SMA-2 loan categories—accounts showing early signs of stress but not yet classified as non-performing. “Yes, the major impact would come from SMA-1 and SMA-2 which are not significantly provided for now. We do have some buffers on standard assets. We believe the impact can be reduced by strengthening our collection mechanism,” Setty said.

SBI has already been tightening its collection systems, especially in retail loans. “Today, about 70 percent of our retail collections happen automatically through savings account sweep-ins. The remaining 30 percent, where delays occur, often due to late salary credits is where we are focusing more intensely,” he noted.

Setty stressed that the bank’s approach is to strengthen collections and reduce frequent rollbacks in SMA accounts, which are not bad assets but often move in and out of temporary stress.

“Structurally, we are strengthening our collection mechanism intensely so that we will not have SMA-1 and SMA-2 situations,” he said.

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