RBI’s Loan Loss Provision Framework

On 16th January, 2023, the Reserve Bank of India published a discussion paper on “loan loss provision”, proposing a framework for adopting an expected loss (EL)-based approach for provisioning by banks in case of loan defaults.

The RBI’s proposal is based on the premise that the present “incurred loss”-based approach for provision by banks is inadequate, and there is a need to shift to the “expected credit loss” regime in order to avoid any systemic issues.

About Loan Loss Provision

  • The RBI defines a loan loss provision as an expense that banks set aside for defaulted loans.
  • Banks set aside a portion ....
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