PNB Braces for $1 Billion Hit as RBI Updates Loan Provisioning Rules

Punjab National Bank (PNB) is preparing for a significant financial adjustment as it adapts to the Reserve Bank of India’s (RBI) updated loan provisioning rules. The bank anticipates an estimated ₹90 billion, or roughly $1 billion, impact on its books due to the transition to the Expected Credit Loss (ECL) framework. This shift represents a major change in how banks in India account for potential loan losses.

Understanding the Expected Credit Loss Framework

The RBI’s draft rules, issued earlier this month, require banks to move away from the current incurred-loss model, under which provisions are made only after a loan defaults. The new framework introduces a forward-looking approach, prompting banks to anticipate potential future losses.

Under the Expected Credit Loss (ECL) model, loans are classified into three stages of credit risk. Stage 1 covers performing loans with low risk, Stage 2 includes loans showing increased risk but not yet in default, and Stage 3 accounts for non-performing loans. 

Banks must now provide for either 12-month expected losses or lifetime expected losses, depending on the quality of exposure. This approach is designed to detect stress in loans earlier and aligns India’s banking practices with global IFRS 9 standards.

Stage 2 Assets to Drive Most of the Impact

PNB’s CEO stated that most of the anticipated hit will come from Stage 2 assets. These are loans that show a rising risk of default but have not yet become non-performing. The expected impact on PNB’s capital ratio is approximately 0.85 percentage points, reflecting the increased provisioning requirements for these assets.

Absorbing the Costs Through Earnings

Despite the upfront cost, PNB expects to manage the impact using its earnings. This demonstrates the bank’s readiness to operate under a more risk-sensitive provisioning system. The transition is intended to make India’s banking sector more resilient by ensuring that potential losses are accounted for earlier, improving financial stability and transparency.

Punjab National Bank Share Price Updates

As of October 20, 2025, 3:30 PM, Punjab National Bank (PNB) share price ended at ₹118.10, up ₹4.40 or 3.87% from the previous close of ₹113.70. The stock opened at ₹114.30 and moved within a day’s range of ₹114.25 to ₹119.16. 

The 52-week range for PNB shares is ₹85.46 to ₹119.16, with a market capitalisation of ₹1,30,732 crore. The trading volume recorded was 3,91,24,653 shares.

Read More:Punjab National Bank's Q2 Net Profit Rises 14% to ₹4,903 Crore

Conclusion

The ECL framework, effective from April 2027, marks a significant step in modernising India’s banking sector. By anticipating potential credit losses and adjusting provisions accordingly, banks like PNB will be better positioned to handle loan stress. The shift is expected to promote prudent lending practices and enhance overall risk management within the sector.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.