Increased provision on CET1 for loan loss to be phased out: RBI paper

The RBI will introduce an ECL approach for loan loss for banks, as compared to the incurred loss approach at present, one year after announcing the final guidelines

The increase in provisioning requirement on common equity tier-I (CET1) capital for loan loss, which will be incurred by scheduled commercial banks due to transition to expected credit loss (ECL) model, will be phased out in five years, the Reserve Bank of India (RBI) said in a discussion paper released on Monday.

“The RBI proposes to adopt the ECL approach used in International Financial Reporting Standards (IFRS) 9 for prescribing guidelines for loss provisioning by banks,” it said in a statement.

The RBI will introduce an ECL approach for loan loss for banks, as compared to the incurred loss approach