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Informist, Thursday, May 7, 2026

 

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--Fitch:Indian bks well placed for expected credit loss provisioning in 2027 
--Fitch: RBI's ECL norms to boost Indian banks' underwriting, risk controls 
--Fitch: RBI's ECL norms may support Indian banks' risk profile scores 
--Fitch: Indian banking system's average CET-1 ratio to fall 30 bps in FY28 
--Fitch:See 45 bps impact on PSU banks' CET-1 ratio FY28 from RBI ECL norms 
--Fitch:See 10 bps hit on pvt-sector bks CET-1 ratio FY28 from RBI ECL norms 

 

MUMBAI – State-owned banks' common equity tier-1 ratios are likely to fall by around 45 basis points in the financial year 2027-28 (Apr-Mar) because of the Reserve Bank of India's expected credit loss provisioning framework, Fitch Ratings said in a release Thursday. The central bank had finalised the directions late last month and they are to take effect Apr. 1. The impact on state-owned lenders is more severe than the fall of 10 bps forecast for private-sector banks.

 

If banks use the RBI's four-year transition mechanism for implementation of the framework, Fitch expects state-owned banks' common equity tier-1 ratios to gradually extend the fall to about 140 bps by FY32, while it expects the fall in the ratios of private-sector banks to extend to 25 bps. This view reflects better loan recoveries and lower credit losses expected by private-sector banks as per the new framework, Fitch said.

Fitch estimates the Indian banking system's average common equity tier-1 ratio to fall by 30 bps in FY28, lower than its earlier forecast of 55 bps due to stronger buffers from provisions than it had earlier assumed. The fall in the average is likely to extend to around 80 bps by FY32, the rating agency said, also lower than its previous estimate of 100 bps. 

 

"Lower non-performing loan generation and better recovery rates have also reduced the impact," Fitch said in its release. "Banks enter the transition from a position of strength, with sector earnings and capital buffers that are close to cyclical highs."

 

The norms will have a "manageable" impact on banks and support the rating agency's positive outlook on its "bb+" score on Indian banks' operating environment, it said in the release. The score could improve if the RBI continues to bring reform in regulation and if India's economic growth trajectory is intact, it said. However, Fitch warned of a delay in such a score upgrade if the war in West Asia is prolonged.

 

Adoption of the new norms could improve banks' underwriting and risk management and decrease the tendency of a prolonged deterioration in asset quality, it said. The implementation of the norms is likely to reduce volatility in earnings throughout the cycle, Fitch said. The Indian banking sector's operating profit or risk-weighted asset ratio is seen falling by around 10 bps due to a similar increase in credit costs because of adoption of the new framework, the agency said. However, this estimate is below the agency's earlier estimate of 20 bps. The directions "may ultimately" aid Indian banks' risk profile scores, it said.

 

The norms reinforce reform in regulation, and requirements for product-wise prudential provisioning floors along with close supervision by the RBI should help in careful implementation by banks, the ratings agency said. The finalised directions are broadly in line with Fitch's expectations, the agency said, and provides lenders with some flexibility in basing assumptions for expected credit losses.  End

 

Reported by Cassandra Carvalho

Edited by Rajeev Pai

 

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