Expected Credit Loss Framework
On 22 July, 2023, private sector lender ICICI Bank said the bank is ready to move to an expected credit loss (ECL) framework for provisioning.
Expected Credit Loss (ECL)
- ECL is a method of accounting for credit risk based on the loss likely to occur on a loan or portfolio of loans.
- Under this practice, a bank is required to estimate expected credit losses based on forward-looking estimations rather than wait for credit losses to be actually incurred before making corresponding loss provisions.
- As per the proposed framework, banks will need to classify financial assets (primarily loans) as Stage 1, 2, or ....
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