The Reserve Bank of India (RBI) has set up an external Working Group on Expected Credit Loss (ECL) based Framework for Provisioning by Banks. Headed by R Narayanaswamy, former Professor, IIM Bangalore. The working group will set out the principles required to be considered by banks while designing the credit risk models to be used for assessing and measuring expected credit losses.
It will also recommend factors that banks should consider for determination of credit risk and suggest the methodology to be used for undertaking external independent validation of the models.
The central bank RBI had released the Discussion Paper on “Introduction of Expected Credit Loss Framework for Provisioning by Banks” on January 16 this year and sought inputs from all stakeholders.
“Several comments have been received from various stakeholders on the issues flagged in the Discussion Paper, which are being examined by the Reserve Bank,”RBI said in statement. “While the regulatory stance to be taken in respect of each of the issues shall be examined by the Reserve Bank, it has been decided to constitute a Working Group in order to get independent inputs on some of the technical aspects having a bearing on the significant transition involved,” it added.
Sanjay Kallapur, ISB, Hyderabad, Rajosik Banerjee, KPMG, S Srinivasa Rao, SBI, Rajendra Khandelwal, ICICI Bank, Susanta Baishya, HDFC Bank, Adish Yadav, Canara Bank, Sridharan N, Equitas Small Finance BanK and Pravinkumar Taparia, Saraswat Co-operative Bank are member of the working group.
The recommendations of the Working Group would be duly factored in while framing the draft guidelines, which shall be put in the public domain for comments before issue of final guidelines, said RBI.
In the discussion paper, RBI proposed that banks will be allowed to design own credit loss models and spread the higher provisions over a five-year period under a newer system of setting aside money for lending. However, banks are free to choose a shorter transition period.