Reserve Bank of India (RBI) aims to issue a discussion paper on the adoption of an expected credit loss framework for banks, Deputy Governor M. Rajeshwar Rao said at an event hosted by the IMC Chamber of Commerce and Industry.
In India, banks use the incurred loss approach for loan loss provisions, whereas bigger non financial companies use the more forward-looking projected credit loss approach for calculating credit losses," Rao said. "Therefore, we suggest issuing a discussion paper on the introduction of a framework on expected credit loss for banks in order to achieve global regulatory convergence." He went on to say that the goal of the discussion is to come up with principle-based guidelines that are complemented with regulatory backstops when needed.
Currently, banks in India follow the RBI's norms, which require provisioning if a nonperforming account is identified. Provisioning is done by banks based on predicted losses under Indian Accounting Standards, which are in line with International Financial Reporting Standards. The new accounting system was meant to be implemented in India in April 2018, but it was postponed until further notice.
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