Central Bank of India Sees Limited Impact from New Provisioning Rules

Central Bank of India Confident in Absorbing RBI's Expected Credit Loss Framework

The Reserve Bank of India's expected credit loss (ECL) framework is set to transform the Indian banking landscape, but State-owned Central Bank of India does not expect any significant impact from the new rules. According to managing director and CEO Kalyan Kumar, the bank's adequate provisioning buffers will cushion it against the changes.

The ECL framework will move banks from an "incurred loss" approach to a forward-looking, risk-based provisioning model, replacing the current overdue ageing-based system. Loans will be classified into three stages based on credit risk – stage 1 (low risk), stage 2 (significant increase in credit risk), and stage 3 (credit impaired). Kumar noted that the bank has already made provisions of ₹1,525 crore for stage 1 and stage 2 assets, apart from maintaining 100% provisioning on stage 3 assets.

As of March end, the bank had a loan book of ₹3.23 trillion, with ₹2.9 trillion in stage 1, ₹11,399 crore in stage 2, and ₹12,848 crore in stage 3. The bank is currently calculating the loan book as on FY26 into each stage as per ECL norms.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The framework aligns Indian banking regulations more closely with Indian Accounting Standards (Ind-AS) and requires lenders to estimate credit losses using key parameters such as probability of default, loss given default, and exposure at default. Analysts say the shift enables earlier recognition of stress and more proactive portfolio management, but it is expected to raise provisioning requirements for banks, potentially pressuring profitability and dividends, particularly for public-sector lenders.

Comparison of Stage 1, Stage 2, and Stage 3 Loans

Banks in India are currently well placed to switch to the ECL, but analysts warn that the main impact would be on transition, especially to factor in higher provisioning for loans that are overdue but not yet non-performing assets or NPAs (Stage 2 loans). Sanjay Agarwal, senior director at CareEdge Ratings, expects a reduction in the capital adequacy ratio of banks by 60-70 basis points.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Kumar said the bank is well-positioned to absorb the transition and does not foresee any material impact, adding that regulatory flexibility on provisioning at the time of migration will ease the shift. Central Bank of India reported a 30% year-on-year decline in net profit for the March quarter (Q4 FY26) to ₹730 crore.

However, Kumar noted that the fall in net profit is primarily due to a ₹632 crore deferred tax adjustment following the bank's transition to the new tax regime. Adjusted for the one-off impact, profitability would have been higher than the year-ago period, he said.

The bank expects to sustain growth momentum in FY27, guiding for deposit growth of 10-12% and advances growth of 14-16%, while maintaining CASA (Current Account Savings Account) ratio at around 48%. For FY26, profit stood at ₹4,369 crore, 15.43% higher than a year earlier.

Key Performance Indicators for FY26

The lender's total business grew 15.60% to ₹8.1 trillion against a target of 14-15%. Retail loans grew over 25%, while agriculture and MSME segments expanded 17.6% and 17.06%, respectively. Corporate lending grew about 14.5%. The lender's savings deposits rose over 10% to ₹2 trillion.

Kumar said auto loan growth of 16% leaves room for improvement compared with peers. "We are strengthening our sales and distribution. Around 500 people are being added in sales, and we are expanding our dealer network," he said.

The bank remains well-capitalised, with a capital adequacy ratio of 17.91% and CET-1 ratio of 15.61%. Capital adequacy ratio and CET-1 ratio are key indicators of a bank's financial strength and loss-absorbing capacity. "At present, we do not foresee any immediate requirement for capital," Kumar said, adding that the board has approved raising up to ₹7,000 crore to retain flexibility if needed.

On meeting minimum public shareholding norms (MPS) set by the markets regulator Securities and Exchange Board of India (Sebi), Kumar said the bank will rely on the government's decision regarding stake dilution through an offer-for-sale. "QIP (qualified institutional placement) is an option, but currently we are comfortable on capital. For MPS, we will depend on the government," he said.