The Reserve Bank of India (RBI) has decided to tighten bad loans (NPA) rules. On Monday, final guidelines were issued for adopting Expected Credit Loss (ECL) based loss provisioning framework. Under which many changes can take place.

RBI says that these instructions are aimed at further strengthening credit risk management practices. The regulatory framework aims to align with internationally based financial reporting principles. The new rules will be implemented from April 1, 2027.

Under the new ECL framework, if the bank feels that a loan may incur losses in the future, it will have to keep capital ready in advance. Earlier in the system there was provision after loss. But this will not happen now. Banks will make preparations regarding the possibility of loss.

Rules for bad loans become stricter

Under the new rules, if a loan remains outstanding for 30 days, it will be considered a sign of danger. The bank will have to be immediately alert about this if. If the loan remains outstanding for more than 90 days, then only the old and new rules will be effective. It will be kept in NPA category i.e. bad debt category. The Central Bank has clarified that the existing NPA classification rules will continue.

The loan will have to be divided into three phases

Loan accounts will be divided into three parts based on future risk assessment. In the first stage, it would be said, which is normal, the probable loss for the next 12 months will be calculated. In the second stage, those accounts will be included in which signs of danger have been found. If the customer’s condition appears to be deteriorating or there is any difficulty in making payments, the bank will have to account for the potential loss to the entire loan office. In the third stage, accounts with the most serious condition were included, for this banks will have to make provision for lifetime loss.

Under the Borrower Level Classification rule, if a large loan of a customer is included in the NPA category, then his remaining exposures should also be looked at in a new way. Let us tell you that the draft to this was released by RBI in October 2025. After this, suggestions were also sought from big banks. Now the final rules have been declared.

See RBI notification here