S&P sees RBI new norms push bank loan growth at upper end of 11.5-12.5% view
This story was originally published at 17:28 IST on 13 October 2025
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--S&P: Indian banks on firmer footing for expected credit loss transition
--S&P: New RBI norms give banks room to keep credit flowing to broader econ
--S&P: New RBI norms to ease credit availability for large corporates
--S&P: See bk credit growth at upper end of 11.5-12.5% view on new RBI norms
--S&P:See most India bks upping credit growth while maintaining asset quality
--S&P: Borrowers may pivot to bank credit over pvt credit post new RBI norms
--S&P:India bks can absorb more provisions in switch to expected credit loss
NEW DELHI – The recent Reserve Bank of India's measures like relaxing risk weights to certain sectors, such as unrated micro, small and medium enterprises, and the expected credit loss norms will push up bank credit growth to the upper end of 11.5-12.5% view, S&P Global ratings said in a report Monday. "...the central bank's latest measures provide more room for the banks to keep credit flowing to the broader economy while supporting the country's sustained economic growth," the rating agency said.
"Most India banks will handle the looser reins, given their stronger balance sheets and hard lessons learned on risk management in recent years," S&P Global Ratings said. "Relaxation of regulatory guardrails in certain areas could also incentivize some borrowers to pivot toward cheaper bank financing versus markets such as private credit, potentially reshaping credit demand dynamics," it added.
The central bank announced 21 developmental and regulatory policies for the banking sector after the Monetary Policy Committee meeting outcome on Oct. 1, including transition to a forward-looking expected credit loss framework from the current incurred-loss provisioning system.
According to the rating agency, the decision to implement the expected credit loss framework and revised Basel III norms reflects strategic timing, allowing banks to benefit from economic growth prospects. "Higher capital ratios anticipated under Basel III reforms can cushion ECL provisions," S&P said.
The RBI's draft norms on the expected credit loss framework, which will take effect from April 2027, mandate banks to set aside more funds for potential bad loans on implementation. It also mandates banks to classify non-performing financial assets into three categories based on the period for which the asset has remained non-performing and the "realisability of the dues", while continuing to apply existing rules for classifying non-performing assets.
On other hand, the central bank has proposed relaxed Basel III-aligned credit risk norms from April 2027, which reduce capital requirements for banks across key segments including retail exposures like credit cards, overdrafts and MSME loans. They will attract a uniform 75% risk weight, provided individual exposure is capped at INR 750 million, group sales are below INR 5 billion, and portfolio diversification is maintained.
The expected credit loss framework is designed to be implemented with a suitable glidepath of nearly five years, allowing banks to transition smoothly. This will give banks time to fine-tune their models, gather data, and smooth out the impact of provisioning on profitability and capital, S&P added. As per the rating agency's analysis, banks can absorb the incremental provisioning as they prepare for the switch to the expected credit loss framework as banks benefit from solid pre-provision operating profits and healthy regulatory capital buffers.
These measures will push up bank credit growth to the upper end of the rating agency's expectation of 11.5-12.5%. "We think most banks can accommodate this faster clip while maintaining their asset quality," S&P global credit analyst Shinoy Varghese said. "That said, risks to asset quality could arise from the easy access to funding with lighter covenants tempting corporates to increase leverage," he said.
The RBI has also proposed relaxing end-use restrictions in the external commercial borrowing framework to ensure wider and easier credit availability to Indian corporates. The rating agency views linking foreign currency borrowings to issuer credit quality rather than a uniform hard cap as a progressive step. "It will allow issuers to explore simpler structures, which would reduce credit risk and that would likely be reflected in lower costs of borrowing," S&P said. End
Reported by Priyasmita Dutta
Edited by Akul Nishant Akhoury
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