This encouraged the move towards adoption of provisioning standards that require the use of expected credit loss (ECL) models rather than incurred loss models. In principle, the approach requires a credit institution to estimate expected credit losses based on forward-looking estimations rather than wait for credit losses to be incurred before making corresponding loss provisions. 27.
However, banks in India follow the “incurred loss” approach for loan loss provisioning, while the bigger non-banking financial companies (NBFCs) are following the more forward looking “expected credit loss” approach for estimating credit losses. Therefore, to achieve global convergence in regulations, we propose to issue a Discussion Paper on introduction of a framework on Expected Credit Loss (ECL) for banks.