RBI's proposals could drive up credit costs

Experts say LCR norms to hit banks' NDTL by 200-250 bps

- Anupreksha Jain

The Reserve Bank of India's three key proposals—the expected credit loss (ECL) framework, liquidity coverage ratio (LCR) norms, and project finance proposals—have kept the banking industry on tenterhooks for quite some time.

The guidelines, if implemented in their current format, are expected to increase provisioning, leading to a rise in credit costs for borrowers by at least 400-500 basis points (bps), said analysts. This, coming at a time when the interest rate cycle is reversing, is worrisome for them. In addition, Finance Minister Nirmala Sitharaman has recently asked banks to cut rates.

The ECL framework alone will impact banks' core capital by around 300 basis points, say experts. LCR norms are likely to have a 200-250 bps impact on banks' net demand and time liabilities (NDTL), experts added.

ICRA, in a report, said that the impact of the whole transition to IndAS, including the ECL framework, could be as much as 300 to 400 bps.