Having understood the background for Basel regulations, let us go back to the issue of mitigating expected and unexpected losses in the credit portfolio, which, among other reasons, arise due to loans turning bad, leading to non-recovery or underrecovery of the loan.
Once a loan is recognised as a non performing asset (NPA), the prudent action is to start recognising the expected losses from that loan upfront so that when the actual losses do materialise, the impact on the profit and loss statement of the bank is spread over a period of time.