{"id":243396,"date":"2023-05-22T20:39:55","date_gmt":"2023-05-22T15:09:55","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=243396"},"modified":"2023-05-22T20:39:55","modified_gmt":"2023-05-22T15:09:55","slug":"banks-request-rbi-for-more-time-to-implement-new-ecl-based-loan-loss-provisioning-norms","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/banks-request-rbi-for-more-time-to-implement-new-ecl-based-loan-loss-provisioning-norms\/","title":{"rendered":"Banks request RBI for more time to implement new ECL-based loan loss provisioning norms"},"content":{"rendered":"\n

Source: <\/b>The post is based on the article \u201c<\/span>Banks request RBI for more time to implement new ECL-based loan loss provisioning norms\u201d<\/b> published in <\/span>Indian Express <\/b>on 22nd May 2023<\/b><\/p>\n

What is the News?<\/b><\/h2>\n

Lenders in India have approached the Reserve Bank of India (RBI) seeking a one-year extension for the implementation of the Expected Credit Loss (ECL)-based loan loss provisioning framework.<\/span><\/p>\n

What is a loan-loss provision?<\/b><\/h2>\n

The RBI defines a loan loss provision as an expense that banks set aside for defaulted loans.\u00a0<\/span><\/p>\n

Banks set aside a portion of the expected loan repayments from all loans in their portfolio to cover the losses either completely or partially.\u00a0<\/span><\/p>\n

In the event of a loss, instead of taking a loss in its cash flows, the bank can use its loan loss reserves to cover the loss.<\/span><\/p>\n

What is the current approach followed for loan-loss provision?<\/b><\/h2>\n

The current \u201cincurred loss approach\u201d requires banks to provide for losses that have already occurred or been incurred.<\/span><\/p>\n

This delay in recognising expected losses under this approach was found to exacerbate the downswing during the financial crisis of 2007-09.\u00a0<\/span><\/p>\n

Faced with a systemic increase in defaults, the delay in recognising loan losses resulted in banks having to make higher levels of provisions which reduced the capital maintained precisely at a time when banks needed to shore up their capital. This affected banks’ resilience and posed systemic risks.<\/span><\/p>\n

What is <\/b>Expected Credit Loss (ECL)-based loan loss provisioning framework?<\/b><\/h2>\n

Under this approach, banks are mandated to forecast anticipated credit losses through forward-looking estimations, rather than waiting for credit losses to materialize before making corresponding provisions for those losses.<\/span><\/p>\n

Banks will be required to classify financial assets (primarily loans, including irrevocable loan commitments, and investments classified as held-to-maturity or available-for-sale) into three <\/span>categories: Stage 1, Stage 2 and Stage 3 based on the assessed credit losses at the time of recognition and subsequent reporting dates.<\/span><\/p>\n

What are the benefits of this approach?<\/b><\/h2>\n

The forward-looking expected credit losses approach will further enhance the resilience of the banking system in line with globally accepted norms.\u00a0<\/span><\/p>\n

It is also likely to result in excess provisions as compared to the shortfall in provisions as seen in the incurred loss approach.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article \u201cBanks request RBI for more time to implement new ECL-based loan loss provisioning norms\u201d published in Indian Express on 22nd May 2023 What is the News? Lenders in India have approached the Reserve Bank of India (RBI) seeking a one-year extension for the implementation of the Expected… Continue reading Banks request RBI for more time to implement new ECL-based loan loss provisioning norms<\/span><\/a><\/p>\n","protected":false},"author":10317,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1566,3127,9],"tags":[10500],"class_list":["post-243396","post","type-post","status-publish","format-standard","hentry","category-daily-factly-articles","category-economy","category-public","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1703944677},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/243396","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10317"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=243396"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/243396\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=243396"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=243396"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=243396"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}