Public sector banks in India are set to raise approximately ₹82,500 crore in capital to adapt to the upcoming Expected Credit Loss framework from the Reserve Bank of India, signalling a shift towards forward-looking credit risk management that may impact bank profitability and market sentiment.
Public sector banks in India are preparing to raise about ₹82,500 crore as they brace for a new credit-loss provisioning regime from the Reserve Bank of India, a shift that is expected to raise the cost of holding bad-loan cover rather than simply fund expansion. The State Bank of India is planning the largest share at ₹60,000 crore, followed by Canara Bank at ₹8,000 crore, Bank of India at ₹7,500 crore and Central Bank of India at ₹7,000 crore, according to the report.
The planned fundraising comes ahead of the RBI’s Expected Credit Loss framework, which is due to take effect from 1 April 2027. Under the new system, lenders will have to set aside provisions based on the likelihood of borrower defaults, a more forward-looking approach than the current model. According to the report, the four state-run lenders cited the provisioning change, rather than immediate growth needs, as the main reason for the capital raise.
Market reaction has already reflected the pressure the new rules may put on bank balance sheets. Moneycontrol reported that shares of Canara Bank and other public sector lenders fell by as much as 2.5% after the RBI finalised the ECL norms and declined requests for more time. ICICI Direct said the framework will require banks to assess credit risk at each reporting date and classify assets into three stages, with provisions rising as risk worsens.
Even so, capital positions remain relatively comfortable. The report said median common equity tier 1, or CET-1, rose 97 basis points year on year to 16.4% in the first quarter of FY27, while median capital adequacy ratio increased 61 basis points to 18.2%. Analysts expect the transition to ECL to hit banks unevenly, with stronger equity buffers helping some lenders absorb the change more easily than others, although higher provisioning and weaker benefits from the old system could still weigh on returns as balance sheets grow.
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