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.
Why now
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.
What it will not do
It will not file your regulatory return, and it does not model the transitional adjustment over the glide path to 31 March 2031. Nor does it work out an NBFC's Impairment Reserve — the shortfall against the IRACP provision that an Ind AS NBFC moves from profit after tax to equity. The regulatory floors are the commercial banks' Directions and are not for an NBFC. All three are real gaps.
The path through it
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.
- 05Use your own ratesReplace the starting assumptions with your own experience, and every figure is measured on them.
Produce the number. Keep the proof.
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