Proposed ECL Framework Likely to Have Moderate Impact on Banks

Summary
The proposed transition to the ‘Expected Credit Loss (ECL)’ framework from the current incurred loss approach is a step forward for the Indian banks towards the Indian Accounting Standards (Ind AS). The transition to the ECL framework would have a one-time impact on the profitability and capital levels. Currently, it is difficult for market participants to quantify the impact due to a lack of public data and banks awaiting a detailed framework. Based on limited disclosures in analyst calls as well as management interaction with select banks, as of now, the likely impact is estimated to be up to 2.5% (subject to deferred tax benefit) on the capitalisation levels.

ECL_Provisioning_CareEdge_Report