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Motilal Oswal recommends HDFC Bank, SBI as top picks ahead of RBI’s ECL regime transition
The Economic Times· 2025-10-12 07:32
Core Insights - The Reserve Bank of India's draft guidelines on the Expected Credit Loss (ECL) framework and revised credit risk capital norms represent a significant evolution in India's banking regulation, aiming to align with global best practices in credit risk modeling and provisioning discipline [1][12] - All scheduled commercial banks will transition to a model-based provisioning system starting April 2027, with a phased implementation through FY2032 [1][12] - The new framework introduces a three-stage classification of assets—performing, underperforming, and credit-impaired—along with model-driven provisioning based on probability of default (PD), loss given default (LGD), and exposure at default (EAD) [2][12] Banking Sector Implications - Regulatory floors for provisioning, such as 0.25–1.25% for Stage 1 and 25–100% for Stage 3 assets, are designed to prevent under-provisioning and ensure consistency across lenders [2][12] - Stronger private lenders, equipped with robust data infrastructure and capital buffers, are better positioned for the transition, while public sector banks have improved balance sheets and provision coverage compared to previous credit cycles [5][12] - The RBI's overhaul of risk weights for various exposures will reshape capital allocation, with lower risk weights for affordable housing (20–40%) and rated MSMEs (down to 85%) to enhance credit flow to priority segments [6][12] Future Outlook - The combination of ECL-based provisioning and risk-sensitive capital norms is expected to enhance the stability and credit discipline of the banking system, fostering greater investor confidence and a more resilient financial sector [7][12] - HDFC Bank is anticipated to experience a healthy growth recovery post FY25, driven by corporate lending and retail portfolio expansion, despite near-term pressure on net interest margins (NIMs) [8][9][12] - State Bank of India (SBI) shows diversified growth across retail, SME, and corporate segments, with improved asset quality (GNPA at 1.8% and provision coverage at 79%), positioning it well for the ECL transition [10][11][12]
New rules will bump up provisions, but SBI chair sees limited hit
MINT· 2025-10-08 09:07
State Bank of India expects a limited impact from a shift to the expected credit loss (ECL) framework, citing the long transition period under the proposed norms that would increase provisioning against stressed loans for lenders. "We are technologically ready for ECL guidelines in terms of models and all, but just some adjustments are required based on the final guidelines," C.S. Setty, chairman at India’s largest bank by assets, told reporters on the sidelines of Global Fintech Fest in Mumbai on Wednesday ...
Pause gives banks breathing space, rate cut likely in December: SBI MD
The Economic Times· 2025-10-01 09:36
Speaking to ET Now, Tonse said that rate transmission has already played out significantly in the banking system. “On the asset side, the adjustment happens almost instantly. On the deposit side, we have limitations, but since February we have seen more than 106 basis points transmission on fresh deposits and about 22 basis points on overall deposits,” he noted.He further added that SBI expects the terminal Busy season demand boostTonse highlighted that the traditional busy season is setting in earlier thi ...
Credit growth, liquidity boost to support banking sector ahead of Basel III: Dinesh Kumar Khara
The Economic Times· 2025-10-01 07:28
Core Insights - The Indian banking system is well-capitalized and prepared for the transition to Basel III norms, which will be effective from April 1, 2027, enhancing banks' ability to raise foreign capital and strengthening their overall capital base [5][8][6] - The Reserve Bank of India (RBI) has adopted a neutral stance in its latest policy, indicating a wait-and-watch approach regarding credit growth, which will depend on tariff-related challenges in the real economy [2][8] - The coverage ratios of banks are at healthy levels, providing adequate buffers against potential credit risks, which is crucial for the stability of the banking sector [1][8] Liquidity and Monetary Transmission - Approximately 58 basis points (bps) of monetary transmission on new loans has occurred, with 21 bps achieved in recent months, while deposit rates have increased by 106 bps, indicating a gradual alignment of lending and deposit rates [1][8] - The relaxation in the Cash Reserve Ratio (CRR) is expected to release about Rs 2.5 trillion in liquidity, supporting credit growth and improving corporate credit demand during the busy season [8][2] Basel III Implementation - The transition to Basel III is viewed positively, as it is expected to boost investor confidence and align India's banking sector more closely with global regulatory standards [6][7] - The additional preparation time until 2027 will strengthen the banking system, allowing for a smoother adoption of Basel III guidelines without significant disruption [8][5] Overall Banking System Health - The Indian banking system has undergone significant clean-up in recent years, resulting in improved asset quality, healthy capital ratios, and robust profitability [7][8] - Experts believe that the Expected Credit Loss (ECL) framework and Basel III adoption will signify a new phase of resilience and global integration for Indian banks [7][8]