The Daily Brief A small rule change by the RBI, a big leap for Indian banks
Oct 16, 2025
A small rule change by the RBI could revolutionize how Indian banks manage bad loans, shifting from an outdated model to a more predictive approach. The IMF raises alarms about hidden risks in global markets, highlighting the fragility behind seemingly stable conditions. Concerns about rising bond yields despite low inflation are discussed, alongside the growing trend of emerging markets shifting towards local-currency borrowing. Lastly, there are fascinating updates on energy compliance and business news that keep the financial pulse alive.
AI Snips
Chapters
Transcript
Episode notes
India Adopts Forward-Looking Bank Provisions
- The RBI will move Indian banks from incurred loss to expected credit loss provisioning starting April 1, 2027.
- ECL forces forward-looking reserves using PD, LGD, and EAD, tightening early recognition of loan losses.
ECL Uses Three Predictive Risk Factors
- Under ECL, banks estimate probability of default, loss given default, and exposure at default to compute expected loss.
- This can raise provisions dramatically for loans previously treated as 'standard', improving early loss coverage.
Model Discretion Meets Regulatory Floors
- ECL increases managerial discretion because banks build internal credit models and use forward-looking forecasts.
- RBI will add regulatory floors and backstops to limit optimistic assumptions and ensure baseline provisioning.