The Reserve Bank of India (RBI) announced the implementation of the expected credit loss (ECL) framework, effective April 1, 2027. This new provisioning system will replace the existing incurred-loss-based framework, requiring banks to adopt a forward-looking approach for asset classification. Under the ECL framework, assets will be categorized into three stages: Stage 1 for low credit risk, Stage 2 for increased risk, and Stage 3 for credit-impaired assets. Banks will need to make higher provisions for stressed loans, which is expected to impact their capital adequacy ratios. However, analysts from Moody's predict that the overall effect on banks' capital will be minimal, estimating a reduction of 50-80 basis points in tangible common equity. The RBI has provided a phased transition plan over four years to help banks adjust without a significant immediate capital reduction. Additionally, the current 90-day overdue rule for classifying non-performing assets (NPA) will remain in place.