Major Overhaul in Bank Loan Rules: RBI’s new ECL norms will change lending and safeguard your money—All you need to know

The Reserve Bank of India (RBI) is set to finalise its Expected Credit Loss (ECL) framework in the next 2–3 months, with full implementation effective April 1, 2026, according to sources.

This move marks a big change in how banks deal with loan losses. Instead of waiting for loans to turn bad, the new Expected Credit Loss system will have banks check the risk early and set aside money in advance, following global practices.

Key changes under ECL system

Currently, banks in India follow the Incurred Loss Model (ICL), under which they only set aside money for potential loan losses after a borrower has already missed payments for 90 days at which point the loan is tagged as a non-performing asset (NPA).

The upcoming Expected Credit Loss (ECL) model will replace this approach with a forward-looking system. Banks will have to assess the risk of a loan turning bad right at the time it's given out looking at things like the borrower’s financial health, credit history, and even broader market conditions. If the loan seems risky, they’ll need to start setting aside money immediately, instead of waiting for problems to show up later.

Implementation Timeline

The Reserve Bank of India released draft guidelines on the ECL model on January 16, 2023. Banks requested additional time to prepare for the transition. They have since begun modifying internal accounting systems to align with the upcoming framework.

Implications for banks

 Banks will now identify and act on possible defaults before a loan actually becomes stressed.

The ECL model aligns Indian banks with international standards like IFRS 9, used in many advanced economies.

Expect banks to be more cautious—they’re likely to tighten credit checks and screen borrowers more carefully before approving new loans.

Frequently Asked Questions (FAQs)

1. What is ECL in simple terms? Are you able to explain it simply? 

ECL means the bank will estimate future credit losses at the time of giving a loan and set aside money accordingly, instead of waiting for the loan to turn bad.

2. When shall this be put into operation? 

April 1, 2026, shall be the date for implementation under Indian banking law.

3. Will my existing loan get affected? 

No, the matter pertains to banks internal lying accounting. Your loan terms remain unchanged.

4. Why were such changes brought in by RBI? 

To strengthen Indian banks and put them on the map with global standards so that such banks can sustain themselves under financial shocks. 

5. Will this make loan getting tough? 

Probably. Now with increased risk assessment, banks may put loan applications to more severe scrutiny.