Reserve Bank of India constitutes an external Working Group on Expected Credit Loss (ECL) based Framework for Provisioning by Banks

Summary:

The Reserve Bank of India (RBI) has released a Discussion Paper on the introduction of an Expected Credit Loss (ECL) framework for provisioning by banks. The ECL approach is a shift from the current incurred loss-based provisioning regime, and a principle-based framework for provisioning for credit risk is proposed.

Following the receipt of comments from stakeholders, the RBI has constituted a Working Group to provide independent inputs on technical aspects related to the transition. The Working Group, chaired by Prof. R. Narayanaswamy, will consist of domain experts from academia, industry, and representatives from select banks.

The Working Group's terms of reference include delineating the principles for credit risk models, recommending factors for determining credit risk, suggesting methodologies for external independent validation, recommending prudential floors for provisioning, and addressing other incidental issues. The recommendations will be factored into the draft guidelines, which will be put in the public domain for comments before the issue of final guidelines.