Indian banks ready for new loss provisioning framework: Fitch

The banking system’s average CET1 ratio is expected to decline by 30bp by FY2028.

Indian banks should be able to manage the impact of the central bank’s recently finalised expected credit loss (ECL) provisioning framework, according to Fitch Ratings.

The framework, which takes effect beginning 1 April 2027, gives banks flexibility in setting assumptions to ECLs, but the Reserve Bank of India (RBI)’s provision floors and supervisory oversight should support prudent implementation, according to the credit rating agency.

The banking system’s average common equity tier 1 (CET1) ratio is expected to decline by 30 basis points (bp) in the financial year ending March 2028 (FY2028). The decline may extend gradually to about 80bp by FY2032 if banks use the RBI’s four-year transition mechanism.

This is lower than Fitch’s earlier estimates of a 55bp decline in the first year and about 100bp by 2032.

“The lower impact mainly reflects stronger starting provision buffers than we had previously assumed,” Fitch said.

Fitch estimates that the sector’s non-performing loan (NPL) provision coverage ratio to be at 77% in 9m FY2026.

“ECL adoption could also strengthen underwriting and risk controls, and may ultimately support banks’ risk profile scores,” Fitch said in a commentary published on 6 May 2026.