The new guidelines shift from incurred loss to forward-looking provisions and will take effect from April 1, 2027.
The New Guidelines By RBI
As per the new guidelines, the new provisioning model will have three stages. Under Stage 1, Standard assets will carry a 12-month expected loss provision. Under Stage 2, there is a significant risk increase and will carry lifetime loss provisions. Stage 3 would mean credit-impaired and will also carry a lifetime loss provision, which can also go up to 100% in unsecured exposures.
The existing definition of a Non-Performing Asset (NPA) remains unchanged and an account will continue to be classified as an NPA if it remains 90 days past due. In case a single credit facility of a borrower is classified as an NPA, all other exposures to the same borrower across the bank must also be tagged as a NPA, as per the guidelines.
Instead of recognizing NPAs at the end of the month or a quarter, the new guidelines state that the recognition of NPAs must be done as part of the day-end process on the day the said account meets the 90-day overdue criteria.
Why PSU Banks
According to brokerage firm Macquarie, the stage 2 provisioning rises sharply from nearly 40 basis points to 500 basis points.
PSU Banks are likely to see a higher hit as their one-time net worth could seen an impact of nearly 5% to 10%, according to Macquarie.
The brokerage also warns that PSU Banks may see a rise of 20 to 25 basis points in their credit costs as well.
On the flip side, private banks are relatively insulated and that the impact for them will be very small as the system is well capitalized with their CET-1 ratio above 13%.
According to Citi, the move is a net positive for higher home loan exposure but adverse for those with an elevated 30-90 days past due bucket, including unsecured loans, MFI, Vehicle Finance and public sector banks.
The PSU Bank index has also seen a strong recovery from the March lows this month, rising 12.5% so far with two more trading sessions to go.
Stocks like Bank of Maharashtra have risen 30% so far this month, with other large lenders like Canara Bank, SBI, Bank of Baroda and PNB also gaining between 11% to 13% so far this month.
