I have a loan book and a regulator
A three-stage ECL on a real loan book — PD, LGD and EAD, undrawn commitments, regulatory floors held apart from the modelled figure — that a supervisor and an auditor can both take apart without anybody rebuilding it from memory.
For Indian commercial banks the directions are final, not a consultation, so the method has to be built, back-tested and governed before the first reporting date rather than on it. NBFCs have been doing this under Ind AS 109 for years already, usually in a spreadsheet somebody has since left the firm.
It will not file your regulatory return, and it does not model the transitional adjustment over the glide path to 31 March 2031. Both are real gaps and both are on the list.
In the order you would meet them. None of them needs another to have been run first, so you can take one and leave the rest.
- 01Bring the loan tape inTied to the ledger before anything is measured.
- 02Get a PD you can defendFrom your own history, including a book that has never defaulted.
- 03Measure the allowanceStaging, scenarios, floors, and the journal entry out.
- 04Back-test itPer grade, because the portfolio figure hides the grade that is wrong.
- 05Put it under change controlNothing takes effect until a second person approves it.
Produce the number. Keep the proof.
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