On 27 April 2026, the Reserve Bank of India (RBI) issued Master Direction: ‘The framework for classification of assets, income recognition and provisioning, with a shift towards an Expected Credit Loss (ECL)’ based approach and the directions will come into force from April 1, 2027, replacing the existing norms.
- RBI has also announced a phased rollout of a new reporting framework for all over-the-counter (OTC) foreign exchange (FX) derivative contracts involving the rupee, effective from July 1, 2027.
Key Highlights of ECL Framework
Transition: At the core of the reform, the banks will transition from the traditional ‘incurred loss’ approach, where banks recognise losses only after a default occurs to the forward-looking ECL model.
ECL: Under an ECL framework, banks estimate expected losses using forward-looking risk measures rather than waiting for defaults to occur.
90-day rule: Loans will continue to be classified as Non-Performing Assets (NPAs) if repayments are overdue for more than 90 days.
Key Highlights of phased FX derivatives reporting norms
Reporting: Under the new framework, banks must report all OTC foreign exchange derivative contracts involving the Indian rupee executed globally by their related parties, including offshore entities.
- This covers both deliverable and non-deliverable contracts.
AD Cat-I: All authorized dealer Category-I banks must report such transactions to the Clearing Corp. of India Ltd (CCIL).
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