New Delhi, June 4 -- The finance ministry has asked public sector banks (PSBs) to build additional provisioning buffers against emerging stress in retail, MSME (micro, small and medium enterprises) and agriculture loans, as rising early-warning accounts and uncertainty from the West Asia war could trigger higher provisioning burdens under the proposed expected credit loss (ECL) regime, according to three people familiar with the matter. The directive was conveyed by the department of financial services (DFS) to chiefs of 12 PSBs in a review meeting last week, the people cited above said on condition of anonymity, as the ministry sought to strengthen monitoring and recovery efforts at PSBs to prevent these accounts from slipping into non-performing assets (NPAs). The directive marks the most significant effort since the covid-19 pandemic to strengthen banks' precautionary buffers, when lenders were encouraged to keep a close watch on restructured loans and other vulnerable segments amid concerns over a potential surge in bad loans. In FY23, retail special mention accounts or SMAs-loans showing early signs of repayment stress-ratio in PSBs was 9.4% of gross advances, according to the Reserve Bank of India's (RBI) Financial Stability Report. At the end of fiscal year 2026 (FY26), the average SMA ratio across the 12 PSBs stood at 3.19% of gross advances, with stress most pronounced in retail loans (6.17%), followed by MSMEs (5.01%) and agriculture (3.86%). Overall, state-run banks reported nearly Rs.4.03 trillion worth of SMAs, according to internal benchmarking data reviewed by Mint. The officials cited above said the finance ministry wants PSBs to strengthen their balance sheets ahead of the proposed rollout of the RBI's ECL framework aligned with global IFRS-9 standards, likely from FY28. Unlike the current incurred-loss approach, the ECL regime will require lenders to make provisions based on expected future losses, including for Stage-2 assets or SMA-2 accounts-which are stressed but short of turning non-performing-significantly raising credit costs and pressuring profitability and capital buffers. SMAs are loan accounts showing early signs of stress. Under RBI norms, they are classified as SMA-0 (showing initial stress), SMA-1 (loans overdue for 31-60 days), and SMA-2 (61-90 days), with accounts overdue for more than 90 days classified as NPAs. Queries emailed to the spokespersons of the finance ministry, the DFS, the RBI, the Indian Banks' Association, and the 12 PSBs remained unanswered....