Lenders with high exposure to the MSME or the unsecured segment are likely to face near-term pressure in terms of provisioning and CET-1 ratios due to the draft expected credit loss (ECL) framework, analysts said.

“The proposed ECL framework will generally require higher provisions across most product segments for banks,” Sachin Sachdeva, vice president, sector head – financial sector ratings, ICRA, said.

“However, the recent significant improvement in asset quality means the overall impact will be less severe… According to ICRA, banks with thinner capital buffers and larger overdue portfolios are likely to face greater challenges during the transition and may need to raise additional capital or utilise the transition period until FY31 to absorb the impact on CET-1 ratios,” he added.

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