New Loss Rules Will Change the Price of a Loan.
Which Borrowers Pay More?

For most banks, the lasting effect of the new rules will be on how loans are priced and collected, more than on the one-time capital cost. Every loan will carry an expected loss from the day it is made, and that cost differs by product, by borrower and by how quickly a bank acts when payments slip.

Pricing. A personal loan needs four times the day-one provision of a home loan, and the gap widens if it falls behind. Products that look equally profitable today will separate once each carries its own expected loss. Banks are likely to reprice the riskier ones first.

Collections. Today the costly line is 90 days, when a loan turns bad. From April 2027 the first costly line is 30 days. A borrower brought back to regular payment before day 30 saves the bank that provision, so expect earlier reminders and calls.

Fee income. Spreading processing fees over the life of a loan will lower reported income in the early years for lenders that grow fast on large upfront fees, and raise it later.

Data. Expected loss models need years of history on how borrowers default and how much is recovered. Banks that have kept that history by product can set provisions close to real risk and price more sharply. Others will rely on the floors, which are set to be cautious.

Bad loans. Bad loans already carry about 76% cover on average, Crisil estimates, so the new floors for them add less than the 5% floor for loans that are late. Europe set similar minimums in 2019, with three to nine years to full cover. India’s floors reach it in one to four.

The test will come in the first downturn after 2027, when provisions rise as soon as forecasts worsen. Banks that have priced expected loss into their products by then will absorb that rise more easily.