A significant change is a shift from how banks recognise bad loans and set aside provisions. Banks will now move from the old ‘incurred loss’ model to a forward-looking Expected Credit Loss (ECL) model. The ECL model requires banks to build sufficient buffers on the basis of the likely losses an asset will incur. To measure ECL, banks should assess whether the credit risk on a financial instrument has increased significantly since initial recognition. A bank shall recognise loss allowance using a ‘three-stage’ approach, based on changes in credit risk since initial recognition. The banks shall compute Stage 1 ECL using a 12-month Probability of Default (PD) and Stage 2 ECL using a lifetime PD. The new rules retain the definition of a non-performing asset (NPA), which defines it as a loan which has not been repaid for 90 days straight
(Link: RBI Circular 23/2026, 24/2026, 25/2026, 26/2026, 27/2026, 28/2026, 29/2026, 30/2026, 31/2026, 32/2026, 33/2026, 34/2026, 35/2026 and 36/2026, all Dated 27/04/2026)