Multi-choice Questions on Revised Guidelines on NPA classification and Provisioning Norms applicable w.e.f. 01.04.2027
NPA Classification and Provisioning Norms 2027 Chapter I and II
NPA Classification and Provisioning Norms 2027 Chapter III
NPA Classification and Provisioning Norms 2027 Misc
Banking Law | Chapter Summary
RBI Directions 2026
Asset Classification, Provisioning and Income Recognition
Chapters I & II: Preliminary, Definitions & NPA Classification
DOR.STR.REC.No.6/21.06.011/2026-27 | Issued: April 27, 2026 | Effective: April 1, 2027
📄 Table of Contents
CHAPTER I: PRELIMINARY A. Short Title, Commencement & Applicability B. Key Definitions CHAPTER II: NPA CLASSIFICATION A. Standard NPA Triggers B. Special Cases of Asset Classification C. Sub-Classification of NPAs D. Other Prudential Norms📚 CHAPTER I: PRELIMINARY
A. Short Title, Commencement & Applicability
Full TitleReserve Bank of India (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026
Date of IssueApril 27, 2026
Effective DateApril 1, 2027
Legal AuthoritySections 21 and 35A of the Banking Regulation Act, 1949
Signed ByVaibhav Chaturvedi, Chief General Manager, RBI
Until CommencementBanks governed by RBI (Commercial Banks – IRACP) Directions, 2025, which stand repealed on April 1, 2027
Applicability
These Directions apply to Commercial Banks, defined as:
- Banking companies (other than Small Finance Banks, Payment Banks and Local Area Banks)
- Corresponding new banks
- State Bank of India
⚠ EXCLUDED: Small Finance Banks, Payment Banks and Local Area Banks
Banks must also follow prudential guidelines for restructured accounts under RBI (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.
B. Key Definitions (Para 6)
| Term | Definition / Description |
|---|---|
| Amortised Cost | Carrying amount after: (i) principal repayments, (ii) cumulative amortisation using EIR method, (iii) adjustment for any loss allowance |
| Cash Credit | Revolving working capital facility; Drawing Power (DP) determined periodically based on eligible current assets; outstanding repayable on demand |
| Credit-Impaired Financial Asset | Asset with objective evidence of impairment due to: (i) NPA status, (ii) borrower financial distress, (iii) lender concessions, (iv) high probability of insolvency, or (v) acquisition at discount |
| Credit-Adjusted EIR | Rate that discounts estimated future cash flows of a POCI asset to its amortised cost at initial recognition |
| Default | Status of a financial asset classified as NPA under Chapter II. Solely for these Directions; without prejudice to default as defined elsewhere. |
| Effective Interest Rate (EIR) | Rate that exactly discounts estimated future cash flows through the expected life of the instrument to the GROSS CARRYING AMOUNT of the financial asset |
| Expected Credit Loss (ECL) | Weighted average of credit losses under different scenarios, with the respective probability of each scenario as weights |
| 12-Month ECL | Portion of Lifetime ECL representing expected credit losses from default events possible within 12 months of the reporting date |
| Lifetime ECL | ECL resulting from all possible default events over the expected life of a financial instrument |
| Loss Allowance | Accounting provision for ECL on financial instruments covered under these Directions |
| Out of Order Status | CC/OD account is 'out of order' if: (i) balance exceeds sanctioned limit/DP for 90 days, OR (ii) no credits for 90 days, OR (iii) credits insufficient to cover interest debited in previous 90 days. Applicable to all funded non-term-loan products EXCEPT credit cards. |
| Overdraft | Credit facility allowing drawdown in excess of credit balance. May be secured (FDs, LIC, small savings) or clean. Granted on current/savings/credit accounts. |
| Overdue | Any principal or interest not paid on the due date fixed by the bank |
| POCI | Purchased or Originated Credit-Impaired financial asset – credit-impaired on initial recognition |
| Renewal | Fresh review of a revolving credit facility (CC/OD) whose sanctioned term has lapsed or is due to lapse, for continuation on same or revised terms |
| Review | Process undertaken by bank to evaluate performance of a financial asset vis-a-vis sanction terms to identify any SICR |
| SICR | Significant Increase in Credit Risk – significant or material change in estimated Default Risk over the remaining expected life of the financial instrument |
| Standard Assets | Exposures NOT classified as Non-Performing Assets |
| Term Loan | Fund-based credit of fixed principal; repaid as per amortisation schedule; sanctioned limit NOT replenishable after repayment |
| Short Duration Crops | Anticipated duration from sowing to marketing: up to 12 months |
| Long Duration Crops | Anticipated duration from sowing to marketing: more than 12 months and up to 18 months |
| Transaction Cost | Incremental costs directly attributable to acquisition, issue or disposal of a financial asset (e.g., agent fees, brokers; excludes debt premiums, financing costs, internal admin costs) |
📌 CHAPTER II: CLASSIFICATION AS NON-PERFORMING ASSET
A. Standard NPA Triggers (Para 8)
| Facility Type | NPA Trigger |
|---|---|
| Term Loans / Bills Purchased & Discounted | Interest and/or principal overdue for more than 90 days |
| Overdraft / Cash Credit (OD/CC) | Account classified as 'Out of Order' |
| OD/CC – Stale Stock/Receivable Statements | Drawings permitted continuously for 90 days where DP is based on stock/receivable statements older than 3 months |
| Short Duration Crops | Overdue for two crop seasons (rabi-rabi-rabi or kharif-kharif-kharif) |
| Long Duration Crops | Overdue for one crop season |
| Securitisation – Liquidity Facility | Amount outstanding for more than 90 days |
| Partial Credit Enhancement (PCE) | Outstanding from date of drawal for 90 days or more |
| Credit Cards | Minimum amount due not paid fully within 90 days from payment due date Note: 'Past due' reporting to CICs allowed only after 3 days past due |
| Debt Instruments (Bonds/Debentures) | Interest/instalment (including maturity proceeds) due and unpaid for more than 90 days |
| Borrower-Level Rule (Para 8(9)) | If ANY ONE exposure to a borrower is NPA, ALL exposures to that borrower become NPA |
NPA Upgrade Rule (Para 8(10))
- NPA may be upgraded to Standard ONLY when entire arrears of interest AND principal are repaid
- For borrowers with multiple facilities: upgrade only on clearing arrears of ALL credit facilities
- Borrower and co-borrower treated as jointly and severally liable
B. Special Cases of Asset Classification (Para 9)
1. Bills Discounted under Letter of Credit (LC)
- Bills discounted under LC need NOT be classified as NPA merely because other credit facilities of that borrower are NPA
- However: if LC is dishonoured and borrower does not pay, bills become NPA with effect from the date the other facilities were classified as NPA
2. NPI – Investment Linkage
- If any credit facility of an issuer is NPA, investments in securities of the same issuer also become NPI (and vice versa)
- Exception: If only preference shares are NPI, other performing securities/facilities of the same issuer need not be NPI/NPA
3. Co-Lending Arrangements (CLA)
- Borrower-level classification applies: if either Regulated Entity (RE) classifies exposure as SMA/NPA, same classification applies to the other RE's exposure
- Information must be shared on near real-time basis and at the latest by end of the next working day
4. Consortium Arrangements
- Classification based on record of recovery of the individual member bank
- If the RE receiving remittances does not share the recovery with other members, account treated as NPA in the books of those other members
- Participating banks must arrange to get their share of recovery transferred or get express consent from the lead bank
5. Advances Against Term Deposits (same bank)
- EXEMPT from NPA classification provided margin (term deposit value as % of loan outstanding including accrued interest) does NOT fall below 100% at any point
- This exemption is NOT available where NPA is on account of the borrower-level rule (Para 8(9))
6. Loans with Moratorium on Interest
- Interest becomes 'due' only AFTER the moratorium or gestation period ends
- Housing/similar loans to staff where interest is payable after recovery of principal: classified as NPA only on non-repayment of principal instalment or interest on respective due dates
7. Agricultural Advances
Crop season-based NPA norms apply to:
- Loans to individual farmers (including SHGs/JLGs) directly engaged in agriculture: crop loans, medium/long-term farm loans, post-harvest loans, loans up to Rs.60 lakh against pledge of agricultural produce, Kisan Credit Card loans, loans to distressed farmers, loans to SMFs for purchase of land
- Loans to corporate farmers / FPOs / FPCs / partnership firms / co-operatives directly engaged in agriculture up to aggregate limit of Rs.4 crore per borrower
- Loans to PACS, FSS and LAMPS for on-lending to agriculture
Other agricultural loans: 90-day delinquency norm applies (same as non-agricultural).
Natural Calamities Relief:
Bank may convert short-term production loan to term loan or reschedule repayment. Such loans treated as current and not NPA. Thereafter governed by revised terms — overdue for two crop seasons (short duration) or one crop season (long duration) triggers NPA.
8. Government Guaranteed Advances
- Central Government Securities and SLR eligible State Government Securities: NOT to be classified as NPI
- Central Government guaranteed assets: treated as NPA ONLY when Government repudiates its guarantee when invoked
- These exemptions are NOT for the purpose of income recognition
- Restructuring of Central Government guaranteed exposure: account retained as standard subject to Government reaffirming guarantee and restructuring terms
9. Export Project Finance
- Where importer has paid the overseas commercial bank but funds cannot be remitted due to political reasons (war, strife, UN embargo, etc.)
- NPA classification may be deferred to one year from the date the amount was deposited by the importer in the commercial bank abroad
- Bank must establish this through documentary evidence
C. Sub-Classification of NPAs (Para 10)
| Category | Duration / Trigger | Characteristics |
|---|---|---|
| Sub-Standard | NPA for a period up to 12 months | Well-defined credit weaknesses; distinct possibility of some loss if deficiencies not corrected |
| Doubtful | Remained in sub-standard category for 12 months | All weaknesses of sub-standard with added characteristic that collection/liquidation in full is highly questionable and improbable |
| Loss Asset | Loss identified by bank / auditors / RBI inspection | Amount not wholly written off. Considered uncollectible; no value as bankable asset though some salvage value may exist |
D. Other Prudential Norms (Paras 11–16)
| Para | Requirement |
|---|---|
| Para 11 | NPA classification norms are without prejudice to requirements under RBI (Commercial Banks – Transfer and Distribution of Credit Risk) Directions |
| Para 12 | Banks must fix realistic repayment schedules based on borrower cash flows at the time of sanctioning credit facilities |
| Para 13 | Loan contracts must provide: (i) exact due dates for repayment, (ii) principal/interest breakup, (iii) schedule of charges, (iv) illustration of SMA/NPA classification and impact on credit profile, (v) schema for appropriation of repayments. Borrower must be informed at sanction and on any subsequent change. |
| Para 14 | Banks must flag accounts as overdue as part of day-end processes for the due date, irrespective of time of running such processes |
| Para 15 | NPA classification must be system-driven as part of day-end process. NPA classification date = calendar date for which day-end process is run. Annex 3 prescribes automation requirements for NPA/NPI classification. |
| Para 16 | Gross Advances, Net Advances, Gross NPAs and Net NPAs to be computed as per format in Annex 4 |
Key Illustration (Para 15):
If due date of a loan is March 31, 2021 and full dues are not received before day-end process — date of overdue = March 31, 2021. If account continues overdue, it gets classified as NPA upon running day-end process on June 29, 2021 (i.e., 90 days from overdue date).
Automation (Annex 3): All borrowal accounts including temporary overdrafts must be covered in automated IT-based system for NPA/NPI classification, upgradation and provisioning. System must handle both downgrade and upgrade through Straight Through Process (STP) without manual intervention. Any manual override requires two-level authorisation. Exception logs must be maintained for minimum 3 years. Periodic system audit at least once a year by Internal/External Auditors.
Banking Law | Chapter Summary
RBI Directions 2026
Asset Classification, Provisioning and Income Recognition
Chapter III: Expected Credit Loss (ECL) – Based Provisioning
DOR.STR.REC.No.6/21.06.011/2026-27 | Issued: April 27, 2026 | Effective: April 1, 2027
📄 Table of Contents
A–B: Scope, Methodology & Fair Valuation C: Initial Recognition & Subsequent Measurement D: Significant Increase in Credit Risk (SICR) E–F: ECL Measurement & Lifetime Period G–H: Probability-Weighted Outcome & EIR I–J: Collateral & Building Blocks K–N: Prudential Floors for ECL O–R: Regulatory PD, LGD, EAD & Additional Provisions S–U: Transition ArrangementsA–B: SCOPE, METHODOLOGY & FAIR VALUATION (Paras 17–19)
Instruments Covered under ECL (Para 17)
- Loans
- Debt securities (other than those measured at FVTPL)
- Trade receivables
- Lease receivables
- Loan commitments including undrawn commitments
- Off-balance-sheet credit exposures
- Any other financial assets with contractual right to receive cash
⚠ EXCLUDED: Investments in subsidiaries, associates and joint ventures
Core ECL Recognition Rule (Para 18)
| Condition at Reporting Date | ECL to Recognise |
|---|---|
| No SICR since initial recognition (OR low credit risk per Para 37) | 12-Month ECL |
| SICR has occurred since initial recognition | Lifetime ECL |
Fair Valuation on Transition (Para 19)
- On April 1, 2027 (transition date): banks shall fair value their entire loan portfolio including all outstanding advances
- Difference between fair value and carrying amount: adjusted against OPENING BALANCE of retained earnings – NOT through P&L
- If fair value is not materially different from carrying cost: carrying cost is presumed to be the best evidence of fair value
C: INITIAL RECOGNITION & SUBSEQUENT MEASUREMENT (Paras 20–24)
| Category | Measurement Approach |
|---|---|
| Loans originated on/after April 1, 2027 | Initial recognition at fair value +/- transaction costs; thereafter at amortised cost using EIR method |
| Loans outstanding as on March 31, 2027 | Must be brought under EIR regime no later than March 31, 2030. Contractual rate permitted as interim discounting factor till then. |
| Loan commitments / off-balance sheet exposures | Date of initial recognition = date bank becomes party to the irrevocable commitment or obligation |
| POCI assets | ECL at inception reflected in credit-adjusted EIR; no separate impairment at inception. Only cumulative changes in lifetime ECL thereafter recognised as impairment gain/loss. |
| Investments / debt securities | Governed by RBI (Commercial Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025 |
D: SIGNIFICANT INCREASE IN CREDIT RISK – SICR (Paras 25–38)
The Three-Stage Framework (Para 25)
🟢 Stage 1
No SICR since initial recognition OR low credit risk (Para 37)
12-Month ECL
🟡 Stage 2
SICR since initial recognition but NOT credit-impaired
Lifetime ECL
🔴 Stage 3
Credit-impaired at the reporting date (= NPA under Chapter II)
Lifetime ECL
SICR Assessment – Key Rules
- Bank must compare: risk of default at reporting date vs. risk at initial recognition over expected life of the instrument (Para 26)
- May use 12-month PD change as proxy for SICR if risk is not concentrated beyond 12 months (Para 27)
- Overdue status may be used as backstop when forward-looking information unavailable (Para 28)
- SICR criteria and parameters must be documented and applied consistently (Para 29–30)
- Collective SICR assessment allowed for segments with shared credit risk characteristics (Para 31)
- If collective SICR, only the affected subset needs to migrate to Lifetime ECL (Para 32)
Rebuttable Presumption of SICR (Para 33)
| Facility Type | Rebuttable SICR Presumption Trigger |
|---|---|
| Term loans / non-revolving facilities | Contractual payments more than 30 DAYS PAST DUE |
| Revolving facilities (CC/OD) | Outstanding balance continuously exceeds sanctioned limit/DP (whichever lower) for up to 60 DAYS |
- Rebuttal allowed only with reasonable and supportable information; not to be adopted routinely or mechanically
- Rebuttal policy must be approved by the Board or Board-approved committee and applied consistently (Para 35)
- Bank must maintain adequate documentation for each instance of rebuttal (Para 36)
Instruments Exempt from SICR Testing (Para 37)
- SLR eligible investments
- Direct claims on Central Government
- Exposures fully guaranteed by the Central Government
- Exposures to Foreign Sovereigns, Foreign Central Banks, MDBs, BIS and IMF attracting zero risk weight
No Stage 1 ECL is required for the above exempted exposures (Para 38)
E–F: ECL MEASUREMENT & LIFETIME PERIOD (Paras 39–46)
How Credit Loss is Calculated (Para 40)
| Instrument | Credit Loss Measurement |
|---|---|
| Loans & similar assets | PV of contractual cash flows due to bank MINUS PV of cash flows bank expects to receive |
| Undrawn loan commitments | PV of contractual cash flows if drawn down MINUS PV of cash flows bank expects to receive if drawn down |
| Guarantees | Expected payments to reimburse beneficiary MINUS amounts bank expects to recover from beneficiary/debtor/other parties |
| Trade & Lease receivables | Always Lifetime ECL; Simplified Approach (provision matrix – Annex 2) may be used |
General Approach (Para 42)
ECL Formula: PD x LGD x EAD (discounted at EIR)
Stage 1: uses 12-month PD | Stage 2: uses Lifetime PD | Stage 3: uses Lifetime PD
A credit loss arises even if payment expected in full but later than contractual date (timing dimension matters).
Lifetime PD for Stage 2 must NOT be derived mechanically from Stage 1 PD parameters without appropriate adjustment. (Para 45)
Lifetime Period (Para 46)
| Facility Type | Lifetime for ECL Measurement |
|---|---|
| Term loans / instruments without undrawn component | Maximum contractual period including extension options |
| Loans with undrawn commitment | Period bank is exposed to credit risk (may extend beyond maximum contractual period); cannot limit to contractual notice period |
| Revolving WITHOUT auto-renewal (CC/OD) | Maximum contractual period UNLESS bank demonstrates renewal process is substantive and results in fresh credit risk reassessment |
| Revolving WITH auto-renewal (credit cards) | Based on historical data: default patterns, drawdown behaviour, effectiveness of limit reduction/suspension/cancellation actions |
| Guarantees | Maximum contractual period over which bank has present contractual obligation |
G–H: PROBABILITY-WEIGHTED OUTCOME & EIR (Paras 47–54)
- ECL must be unbiased and probability-weighted: neither worst-case nor best-case (Para 47)
- Multiple economic scenarios required; probability of each scenario based on historical experience and expert judgement (Para 48–49)
- ECL for instruments originated on/after April 1, 2027: computed using EIR at initial recognition
- ECL for POCI assets: computed using credit-adjusted EIR
- Opening ECL as on April 1, 2027 may use contractual interest rate as discounting factor in the interim (must migrate to EIR by March 31, 2030)
- EIR includes: origination fees, commitment fees, transaction costs, premiums or discounts; excludes expected credit losses
- Transaction costs include: fees to agents, advisers, brokers and dealers. Excludes: debt premiums/discounts, financing costs, internal admin costs
- EIR for floating-rate instruments must be re-estimated whenever the benchmark rate changes
- ECL on loan commitments discounted using EIR (or approximation). For revolving facilities/guarantees where EIR cannot be determined: use discount rate reflecting current market assessment of time value of money
I–J: COLLATERAL & BUILDING BLOCKS (Paras 55–74)
Collateral in ECL Computation (Para 55)
- Expected cash shortfalls must reflect cash flows from collateral less costs of obtaining and selling it
- Stage 3 instruments with exposure beyond Rs.7.5 crore: collateral to be valued at time of classification and thereafter at least once every 2 years by appointed valuers
- Stock/inventory: valued at least annually
- Other exposures: frequency of valuation as per bank's internal policy
Governance Framework (Paras 56–57)
- Board of Directors: responsible for oversight of ECL framework implementation and ongoing functioning
- Board sub-committee (including CFO and CRO): oversees ECL implementation strategy, data integrity, methodology consistency, model validation independence, disclosures and regulatory compliance
Building Blocks Summary
| Building Block | Key Requirements |
|---|---|
| J.2 Credit Risk Drivers | Sound credit risk rating/scoring system with clearly defined grades; data used for ECL must be consistent with credit risk assessment systems (Para 58–60) |
| J.3 Data Management | Sufficiently granular data; processes for data quality risk management for both internal and external data; maintain sufficient historical loss data covering representative periods including business cycle variations (Para 61–64) |
| J.4 Segmentation | Group exposures by shared credit risk characteristics; review segmentation periodically; no masking of individual credit risk deterioration by group performance; re-segment when relevant new information received (Para 65–68) |
| J.5 Forward-Looking Info | Include borrower-specific factors, current economic conditions and forecasted macroeconomic variables; adjust historical ODR/LGD for current conditions; where statistical linkages weak, use expert judgement with thorough documentation (Para 69–73) |
| J.6 Model Risk (Three Tiers) | Tier 1: Front-Line Operations – model owners responsible for development and implementation. Tier 2: Risk Management & Compliance – monitors risks, oversees validation. Tier 3: Internal Audit – provides objective assurance, reports to Board/Audit Committee (Para 74) |
K–N: PRUDENTIAL FLOORS FOR ECL (Paras 75–95)
Capital Treatment of ECL Allowances (Para 75)
| ECL Category | Capital Treatment |
|---|---|
| Stage 3 ECL allowances | Treated as SPECIFIC PROVISIONS |
| Stage 1 & Stage 2 ECL allowances | Eligible as GENERAL PROVISIONS for inclusion in Tier 2 capital (subject to prescribed limits) |
| Management Overlay | Treated as general provision (eligible for Tier 2) |
Level of Application (Para 76)
- Stage 3: applied at BORROWER LEVEL – all exposures including non-funded become Stage 3
- Stage 2: applied at FACILITY LEVEL
Prudential Floors – Stage 1, Stage 2 & Stage 3
| Loan Product Category | Stage 1 Floor | Stage 2 Floor | Stage 3 Floor (Secured / Unsecured) |
|---|---|---|---|
| Secured Retail Loans (100% primary security) | 0.40% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Corporate Loans | 0.40% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Loans to Small & Micro Enterprises | 0.25% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Loans to Medium Enterprises | 0.40% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Farm Credit to Agricultural Activities | 0.25% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Loans to Banks, NBFCs & Regulated FIs | 0.40% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Loan against Term Deposits, LIC Policy, KVP | 0.40% | 0.40% | 10/25% → 20/100% → 30/100% → 40/100% → 100% |
| Gold Loans | 0.40% | 1.50% | 10/25% → 20/100% → 30/100% → 40/100% → 100% |
| State Govt / State Govt Guaranteed Exposures | 0.40% | 2.50% | 10/25% → 20/100% → 30/100% → 40/100% → 100% |
| Housing Loans to Individuals | 0.25% | 1.50% | 10/25% → 20/100% → 30/100% → 40/100% → 100% |
| CRE (ADC) – other non-qualifying CRE | 1.25% | See Directions | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| CRE-RH (ADC) | 1.00% | See Directions | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Other claims secured by Residential Real Estate | 0.40% | 1.50% | 15/25% → 25/100% → 40/100% → 55/100% → 100% |
| Other claims secured by Commercial Real Estate | 0.40% | 2.50% | 15/25% → 25/100% → 40/100% → 55/100% → 100% |
| Project Finance – Pre-operational Phase | 1.00% | See Directions (DCCO-linked) | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Project Finance – Operational Phase | 0.40% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| CGTMSE / CRGFTLIH / NCGTC Guaranteed | 0.25% | 0.25% | 10/25% → 20/100% → 30/100% → 40/100% → 100% (unguaranteed portion) |
| Unsecured Retail Loans | 1.00% | 5% | 25% (0–1 yr) → 100% (after 1 yr) |
| Restructured Standard (Natural Calamity) | 5.00% | 10% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
| Residual / Other Categories (xv) | 0.40% | 5% | 25/40% → 40/100% → 55/100% → 75/100% → 100% |
Stage 3 floor progression: 0–1 yr / 1–2 yrs / 2–3 yrs / 3–4 yrs / after 4 yrs. * Unsecured portion always higher.
Application Rules for Prudential Floors (Paras 90–95)
- Stage 1 & Stage 2: applied on portfolio basis per product category (may also be applied at individual account level per bank's policy)
- Stage 3: MANDATORILY at individual account level
- Gold loans cannot be grouped under 'secured retail loans' for ECL computation
- For infrastructure projects: rights/licences/authorisations charged as collateral are NOT reckoned as tangible security (unsecured) UNLESS conditions under Para 95 are met (escrow, rate-of-return regulation, etc.)
- Existing floating provisions/countercyclical provisioning buffer may be utilised towards ECL provisioning (Para 89)
- Banks with Default Loss Guarantee (DLG) arrangements may consider DLG for ECL provisions; must recompute after each DLG invocation (Para 88)
O–R: REGULATORY PD, LGD, EAD & ADDITIONAL PROVISIONS (Paras 96–102)
Regulatory PD Floor (Para 96)
Minimum Regulatory 12-Month PD Floor
The 12-month PD for any instrument for ECL computation shall not be less than 0.03% (3 basis points)
Regulatory LGD Backstop Values (Paras 97–99)
| Portion | Regulatory LGD | Applicable Collateral / Condition |
|---|---|---|
| Secured Portion (general) | 65% | General secured collateral |
| Unsecured Portion | 70% | No collateral |
| Specific High-Quality Collateral | 30% | Cash, gold (bullion & jewellery), Central/State Govt securities, LIC policy, Kisan Vikas Patra, National Savings Certificates |
LGD computation subject to internal validation by an independent team. Rationale and methodology must be documented.
Exposure at Default (EAD) (Para 100)
- Bank shall estimate EAD appropriately; credit risk mitigants NOT to be netted off from EAD
- For loan commitments and guarantees: estimate amount expected to be drawn down at time of default
- If unable to reliably estimate EAD internally: use regulatory CCF from RBI Capital Adequacy (Standardised Approach) Directions, 2026
Additional Provisions in Specific Cases (Para 101)
| Special Case | Additional Provision Requirement |
|---|---|
| Resolution of Stressed Assets | Also follow RBI (Commercial Banks – Resolution of Stressed Assets) Directions, 2025 |
| Fraud Accounts | Full provision immediately upon detection; may adjust eligible financial collateral; applicable even for deposit accounts |
| Foreign Currency Loans (RERFA) | Loss on revaluation to P&L; full revaluation gain used to make provisions against the corresponding assets |
| Wilful Defaulters | Additional 5% provision over and above ECL where any director (other than nominee director of Govt/FI) appears in wilful defaulters list |
S–U: TRANSITION ARRANGEMENTS (Paras 103–112)
Treatment of Existing NPAs (Paras 103–104)
- Accounts classified as NPAs as on March 31, 2027: NOT to be upgraded solely due to implementation of these Directions
- They retain NPA status until underlying deficiencies/irregularities are rectified as per applicable prudential requirements
- Post-rectification: may be migrated to appropriate ECL stage. Reversal of provisions permitted only to the extent warranted by ECL at relevant stage (subject to prudential floors)
- Banks must put in place appropriate systems, processes and controls during transition
Transitional Capital Relief – CET1 Add-Back (Paras 106–112)
Transitional Adjustment Amount = ECL required as on April 1, 2027 (based on March 31, 2027 balance sheet) MINUS IRACP provisions as on March 31, 2027
This excess (if any) is adjusted against opening retained earnings as on April 1, 2027 – NOT through P&L.
| Financial Year | Maximum CET1 Add-Back (Fraction) | Equivalent % |
|---|---|---|
| 2027-28 | 4/5 of transitional adjustment amount | 80% |
| 2028-29 | 3/5 of transitional adjustment amount | 60% |
| 2029-30 | 2/5 of transitional adjustment amount | 40% |
| 2030-31 | 1/5 of transitional adjustment amount | 20% |
A bank may choose to complete transition over a shorter period. The transitional amount flows through to Tier 1 capital and total capital (and consequently leverage ratio and large exposure limits).
The transitional add-back amount shall NOT be:
(i) Included in Tier 2 capital | (ii) Used to reduce exposure amounts under standardised approach | (iii) Used to reduce the total exposure measure for leverage ratio
Reverse Situation:
If ECL on April 1, 2027 is LOWER than existing IRACP provisions: bank may record the adjustment directly in retained earnings (not through P&L).
Consolidated Financials (Para 105): For consolidated financial statements, subsidiaries, joint ventures and associates shall prepare their financial statements as per extant accounting and regulatory norms applicable to them.
Mandatory Disclosure Requirement (Para 112):
Banks must disclose in their financial statements: (a) whether the regulatory transitional arrangement has been applied, and (b) the impact on regulatory capital and leverage ratios compared with fully loaded ratios if transitional arrangement had not been applied.