By Siddhi Nayak
MUMBAI (Reuters) – The Indian Banks’ Association has asked the country’s central bank to give lenders more time to switch to provisioning for bad loans using the expected credit loss (ECL) method, its chief said on Tuesday.
The Reserve Bank of India had, in January, released a discussion paper suggesting banks switch to the ECL method, in which lenders assess the probability of default upfront and provision accordingly, rather than after a default as is the current norm.
Indian lenders are yet to transition to the ECL method.
“We have requested the regulator to allow us a little more time to prepare ourselves,” said Sunil Mehta, CEO of the IBA, an industry body.
“We have requested them (RBI) for one more year. (Fearing the) worst case scenario, the banking system is gearing up,” Mehta said.
A few banks have already readied their systems and data to design their ECL-based risk models, Mehta added.
Morgan Stanley has estimated that the switch to using the ECL method could hit state-run banks to the extent of 1% to 2.5% of loans.
(Reporting by Siddhi Nayak in Mumbai; Editing by Savio D’Souza)
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