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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.

As part of Uniqus’s outreach with the RBI, further to the Early Impressions released on 20 January 2023, this document articulates our point of view on the issues raised in the DP. We have formed opinions on these matters based on our team’s experience of implementing ECL and IFRS 9 in the financial services sector globally and in India.

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