Banks stare at higher costs, slower credit growth

BANKS ARE PREPARING for a challenging 2025, as the Reserve Bank of India (RBI) moves closer to implementing stringent guidelines on the expected credit loss (ECL) framework, liquidity coverage ratio (LCR) norms and project finance requirements.

- SACHIN KUMAR

BANKS ARE PREPARING for a challenging 2025, as the Reserve Bank of India (RBI) moves closer to implementing stringent guidelines on the expected credit loss (ECL) framework, liquidity coverage ratio (LCR) norms and project finance requirements. These regulations, aimed at fortifying the financial sector, could result in higher operational costs, increased provisions and tighter liquidity buffers.

The guidelines, if implemented in their current format, are expected to increase provisioning, leading to a rise in credit cost for borrowers by at least 400-500 basis points, said analysts.

However, bankers and analysts believe these measures are crucial for the long-term health and sustainability of the sector. "Proposed guidelines are like bitter pill. It may cause some discomfort in the short term, but will make banks stronger in the long term," said an executive director of a public sector bank.

In the last post-policy conference in December, deputy governor M Rajeshwar Rao highlighted that the RBI had taken a collaborative approach to implement these guidelines. "Guidelines are fairly a major game changer as far as the banking system is concerned. We have gotten feedback, which needs to be carefully evaluated as these guidelines will have a significant impact on the banking system. We are close to finalising some of the guidelines."