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Well-equipped to deal with ECL framework: SBI Chairman Dinesh Khara

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State Bank of India (SBI) is well equipped to comply with the expected credit loss (ECL) framework, without impacting its balance sheet, Chairman Dinesh Kumar Khara said while announcing the bank’s January-March earnings on Thursday.

In January, the Reserve Bank of India (RBI) released a discussion paper on the ECL framework for loan loss provisioning in which it said banks may be given five years to comply with the increase in provisioning requirement on Common Equity Tier I capital.

The RBI said the ECL approach for loan loss for banks, compared to the incurred loss approach at present, will be introduced one year after announcing the final guidelines.

The ECL framework will need additional capital for banks.

“We have done some calculations. Those numbers are much lower, compared to the additional provisions we are holding in our balance sheet,” said Khara.

“As far as our readiness is concerned, we will simply wait for the RBI guidance on this. Once the guidance is in, we are well equipped to deal with the scenario,” he added.

He explained that the provisions under the new framework would be made on ECL and loss given default (LGD).

“ECL, which is the probability of default, is nothing but a reflection of the underwriting standard. The other factor that will determine the provision is how the book has been. The corporate book (of SBI) is provided to the extent of 98 per cent. Retail is 42 per cent (of loan book), whereas our gross non-performing asset (NPA) ratio is 0.6 per cent. So, the LGD is low,” he said.

“The probability of default is a clear reflection of our underwriting standards we are adhering to,” he said.

He said the bank’s non-NPA provisions are over Rs 35,500 crore.

“…first and foremost, ECL as of now is fiction and if at all it becomes reality, we are well equipped to deal with it without any impact on our balance sheet. We have always followed the principle to insulate the balance sheet fully. Our balance sheet is insulated against future potential events as well,” he added.

The RBI had invited comments to the discussion paper by February 28. After receiving feedback, the draft guidelines would be issued. Final norms would then be announced. The RBI is yet to announce when the norms would formally kick in.

Some rating agencies said that the final norms on the ECL framework may be notified by 2023-24 for implementation from April 1, 2025.

Sunil Mehta, chief executive officer of Indian Banks’ Association, recently said that banks want more time to prepare before migrating to the new provisioning framework. He said banks have requested another year for preparation.


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