The Basel Committee’s release on QIS5 also stated that methodologies and systems for LGD calculation are still being developed and that, as a result, some of the effects of downturns may have been underestimated. The U.S. agencies' release on QIS4 stated that U.S. banks also faced some challenges in estimating downturn LGDs.
The MSME sector in general and more specifically the small and micro enterprises rely heavily on the banks for finance and as such banks have to recognise the vast potential that exists in responsible lending to the MSE segment.