The RBI forms a working group on expected-credit-loss provisioning from the outside
Mumbai: On Wednesday, the Reserve Bank of India established an external working group to discuss the anticipated credit-loss-based framework for bank provisioning. This follows the RBI's publication of a discussion paper in January on switching from the incurred-loss strategy to the ECL model in order to strengthen the banking sector.
In contrast to the current system, which requires them to make provisions when losses are sustained, banks will be required to recognize stress considerably sooner under the so-called anticipated credit loss (ECL) model put forth by the regulator.
The working group will be led by former IIM Bangalore professor R Narayanaswamy, according to a news release issued by RBI on Wednesday. Along with domain specialists from business and academics, there will also be representatives of particular banks.
The group's mandate would include formulating guidelines for banks and creating credit-risk models for determining and quantifying anticipated credit losses. It will also suggest variables for banks to take into account when assessing credit risk.
Before releasing final guidelines, the RBI said it will take these ideas into consideration when drafting the draft rules.
In a news release, the central bank stated: "The Reserve Bank is currently reviewing a number of comments on the problems raised in the discussion paper from various stakeholders. While the Reserve Bank will investigate the regulatory approach to be followed in regard to each of the difficulties, it has been agreed to form a working group in order to receive outside opinion on some of the technical issues affecting the considerable change involved.
The effect of ECL on banks' core capital is estimated by analysts to be 200 basis points (bps). According to data from the RBI, the core capital—common equity tier-1 capital—of 46 banks was 13.7% as of the end of March.
No comments:
Post a Comment