What 1 April 2027 does to capital, and how long you have
The move from IRAC provisioning to expected credit loss strikes a one-off adjustment on 1 April 2027. It does not go through profit or loss, the relief against it only exists if the move is a charge, and the glide path runs four years and cannot be stretched. On the illustrative book below it is 122 basis points of CET1 on day one.
Three things that are easy to get wrong
The difference between ECL on the transition date and the IRAC provisions carried the day before is taken to OPENING RETAINED EARNINGS. A model that ran it through P&L would report a year's loss that never happened, and a board would be answering for a result that does not exist.
The adjustment eligible for relief is the excess of ECL over existing provisions, and nothing more. Where ECL comes out lower there is no add-back to claim — the difference still lands in retained earnings, as a credit, and the bank has a better day one and no glide path at all. A capital plan that assumed relief it was never eligible for is wrong in the direction nobody checks.
It is added to CET1 net of tax, and so flows to tier 1, to total capital, to the leverage ratio and to large-exposure limits. It does NOT reach tier 2. It does NOT reduce exposure amounts under the standardised approach, and it does NOT reduce the leverage ratio exposure measure. A plan built on the wrong one of those is wrong by the size of the relief.
A worked book
Illustrative mid-size commercial bank — illustrative figures, not any real bank’s. ECL of ₹1,850 crore against IRAC provisions of ₹1,200 crore, CET1 of ₹5,600 crore on risk-weighted assets of ₹40,000 crore, at a tax rate of 25.17%.
The glide path
Four fifths of the adjustment may be added back to CET1 in the first year, then three fifths, two fifths, one fifth. There is no fifth year: the transition ends 31 March 2031, and a plan that expected a tail after that is short at exactly the point the relief was thinnest. A bank may finish sooner. It may not take longer.
| Financial year | Fraction | Added to CET1, net of tax | CET1 with relief | Relief |
|---|---|---|---|---|
| 2027-28 | 4/5 | ₹389 cr | 13.76% | +97.3 bp |
| 2028-29 | 3/5 | ₹292 cr | 13.51% | +73.0 bp |
| 2029-30 | 2/5 | ₹195 cr | 13.27% | +48.6 bp |
| 2030-31 | 1/5 | ₹97 cr | 13.03% | +24.3 bp |
| After the glide path | — | — | 12.78% | none |
The last row is the one a capital plan has to end at. The relief is a loan against the bank’s own future ratio, not a reduction of the adjustment — the adjustment landed in full on day one and the ratio returns to that level whatever happens in between.
If your ECL comes out lower
It happens, and on a well-provisioned book it is not unusual. On the same balance sheet with ECL of ₹950 crore against the same ₹1,200 crore of IRAC provisions, the movement to retained earnings is a credit of ₹250 crore, the amount eligible for relief is ₹0, and there is no glide path because there is nothing to glide down from. The capital position improves on day one and stays improved.
What this page rests on
RBI (Commercial Banks — Asset Classification, Provisioning and Income Recognition) Directions, 2026 — RBI/DOR/2026-27/398, paragraphs 106 to 112. Read from the instrument on 2026-09-12 and machine-checked against it, not transcribed from an analysis of it.
This page used to carry a warning instead. The figures here were transcribed from published analyses of the Directions, and said so, because the provisioning floors guide on this site exists to show what that is worth: reading the instrument rather than an analysis of it changed five of eleven categories, including one book left with no floor at all.
The instrument has now been read. Every fraction, both dates and all three exclusions are located in the text of paragraphs 106 to 112 by a test, so a transcription error fails the build rather than waiting to be noticed. The analyses turned out to be right about the mechanics — which is worth saying, because the floors guide is a story about them being wrong — and to have left out two things.
The first is that where ECL comes out below the provisions a bank already holds, the instrument gives it a choice. Paragraph 110 says a bank “may” record the credit directly in retained earnings instead of routing it through profit and loss. This page previously stated the reserves outcome as settled. It is an election, and the alternative is income of the year.
The second is a deadline. The Directions require a reconciliation of opening reserves to reach the Reserve Bank by 30 June 2027, splitting the transitional adjustment across the three stages. It falls due before the first reporting date a bank would be planning around, and this product does not produce it yet.
Engage the author
This guide is his reading. He will also work the transition through on your figures: the day-one adjustment, what it does to CET1 net of tax, the disclosures the first period needs, and a plan for the year the add-back runs out.
He prepares accounts and prepares them for audit. He does not sign statutory audit opinions, which in Luxembourg are signed by an approved statutory auditor. He works from Luxembourg and takes engagements remotely.