RBI issues draft norms for transition to expected credit loss framework

The Reserve Bank on Tuesday released draft norms to replace the incurred-loss-based provisioning framework with an expected credit loss (ECL) based provisioning to further strengthen credit risk management practices and promote greater comparability across financial institutions. The proposed guidelines are expected to further strengthen credit risk management practices, promote greater comparability across financial institutions, and align regulatory norms with internationally accepted regulatory and accounting standards. The key elements of the proposed framework include introduction of staging criteria for asset classification under Expected Credit Loss (ECL) approach, while retaining the extant norms for Non-performing Asset (NPA) classification; specification of suitably calibrated prudential floors for broad exposure classes, separately under Stage-1, Stage-2 and Stage-3; alignment of the income recognition norms based on Effective Interest Rate (EIR) method; broad principles on model risk management for implementing ECL models.

Powered by Capital Market - Live News