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.
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.
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%.
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.
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.
RBI (Commercial Banks — Asset Classification, Provisioning and Income Recognition) Directions, 2026, transitional arrangements. Transcribed from published analysis (checked 2026-09-05), NOT read from the primary instrument.
That last clause matters and it would be easy to leave out. The provisioning floors guide on this site exists because reading the Directions rather than an analysis of them changed five of eleven categories — including one book that had no floor at all. These transitional mechanics have not had that treatment yet. They are stated here because a board asking what day one costs deserves an answer, and they are marked as the weaker claim because using our own argument only where it flatters us would be worse than not making it.
The arithmetic is not in doubt — it is the same engine that produces the figure, and it refuses to assume your tax rate, your capital position, or a longer transition than four years. What has not been checked against the instrument is the schedule of fractions and the list of what the add-back reaches.