RBI mandates expected credit loss model including small finance banks
Big change alert: The RBI now wants banks, including small finance banks, but excluding payments banks, local area banks, and regional rural banks to start using an expected credit loss model from April 1, 2027.
Instead of waiting for loans to go bad, banks will have to use data and math to predict which loans might fail, and set aside money in advance.
The goal? Spot risks early and keep the banking system safer for everyone.
Banks must provision old loans
Small finance banks are included too (but payments banks, local area banks, and regional rural banks can chill for now).
Banks need to apply these rules even on old loans by March 2030.
Loans backed by solid stuff like gold or cash will need less extra money set aside.
Experts think public-sector banks' net worth could dip 5% to 10% at first, but strong reserves should help balance things out.