RBI released Master Directions on April 27, 2026, revising bad loan classification rules effective April 1, 2027. New framework aligns India's non-performing asset (NPA) norms with global financial reporting standards like IFRS 9. Changes strengthen credit risk management, improve cross-bank comparability, and harmonize regulatory framework with international practices. Move comes amid banking sector reforms to enhance asset quality disclosure and recovery mechanisms across regulated entities.

The RBI's revised bad loan framework represents a significant shift towards international banking standards, particularly aligning with Expected Credit Loss (ECL) model used globally under IFRS 9. Currently, Indian banks follow an 'incurred loss' model where NPAs are recognized only after default occurs at 90 days past due. The new rules likely introduce forward-looking provisioning based on expected losses rather than historical defaults. This change improves early identification of stressed assets, enabling proactive risk management. For the banking sector, this means higher provisioning requirements initially but better long-term asset quality transparency. The 10-month implementation timeline allows banks to upgrade systems and train staff. Internationally, this positions Indian banks for better credit ratings and foreign investment access. The move also supports RBI's broader financial stability goals by ensuring banks maintain adequate buffers against potential losses. Enhanced comparability across banks will benefit investors and regulators in assessing true financial health, reducing information asymmetries in the credit market.