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Developed an Expected Credit Loss (ECL) forecasting model for a leading Indian bank for their entire portfolio

About Client

Client is an Indian private sector bank headquartered in Mumbai and founded in 1943.It mainly served small and medium enterprises (SMEs) and business merchants in the Kolhapur-Sangli belt. As of December 2019, it has a network of 372 branches and 394 ATMs across 28 states and union territories and announced a raised INR 675 crore through preferential issue.

Objective

  • As per Indian Accounting Standards (Ind AS), client wanted to develop a method to measure the expected credit loss as a probability weighed estimate of credit losses over the expected life of the financial instrument.
  • The objective is to quantify loss expectations as opposed to loss that has been incurred. each defaulting customer

Impact

  • The bank was able to set aside an expense as provisions to meet the potential future loss due to credit risk.
  • Prompt loss recognition model, measured over a variety of data, helped the bank to reduce the procyclicality of bank lending.
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