UNIQUS Corner – shaping the regulatory and governance agenda

On 16 January 2023, the Reserve Bank of India (‘RBI’) issued a DP on the ECL based approach for loan loss provisioning by banks. In this context, the RBI had sought comments and input on a wide range of issues pertinent to implementing the ECL approach.

The DP has proposed principles-based guidelines for determining ECL largely in line with International Financial Reporting Standards (‘IFRS’) 9 on financial instruments. The DP has taken a holistic view in formulating the proposed ECL-based approach by covering aspects such as classification of financial assets, scope/coverage of financial assets, Effective Interest Rate (‘EIR’), regulatory backstops, and disclosures. However, other aspects relating to derecognition, application of a business model for subsequent measurement, reclassification, and treatment of existing provisions held by banks, including those on Non-Performing Assets (‘NPA’), have not been covered explicitly in the DP.