1、January the Difference.Expected Credit Loss(ECL)Turning Theory into Action2|Expected Credit Loss(ECL)Table of contents Introduction0103Expected Credit Loss(ECL)framework02 04Development of different ECL components 0305Validation of the models 0413Key challenges0514Key impacted areas 0616Conclusion07

2、17Glossary18Expected Credit Loss(ECL)|3Expected Credit Loss(ECL)was implemented in different countries under IFRS9 standard in 2018.In U.S.A.also,the standard came in effect as part of ASC 326 Current Expected Credit Loss(CECL)in 2022.In India,Reserve Bank of India(RBI)has deferred the implementatio

3、n of the standard for banks,but any Non-Banking Financial Company(NBFC)which has transitioned to IndAS,the requirement to compute ECL is applicable as per IndAS 109.Mostly all major economies are now transitioned to IFRS9 standard as issued by the International Accounting Standards Board(IASB).To tr

4、ansition to ECL from current incurred loss method RBI has issued discussion paper in January 20231.In continuation,RBI,on 4 October 2023,had constituted a nine-member committee to recommend framework for ECL loan loss provisioning for Indian Financial Institutions(FIs).Final guidelines basis the rec

5、ommendations of the committee are expected to be released by RBI and thus it is imperative for all Indian FIs to work towards implementing ECL computation policies and framework.The paper is organised as follows.This section provides the introduction to the paper.The subsequent section provides an o

6、verview of the ECL framework and key requirements for robust framework implementation.Section three provides key components of ECL framework.Section four provides an overview of key considerations in validation of different models and framework as per regulatory guidelines and industry best practice