New Delhi: The Reserve Bank of India (RBI) on Wednesday constituted a nine-member committee to suggest, among other things, provisioning for Expected Credit Loss (ECL) framework.

The ECL approach to provisioning is a paradigm shift from the existing provisioning regime based on incurred losses.

The working group will be chaired by R Narayanaswamy, former Professor, IIM Bangalore, and shall consist of domain experts from academia and industry, the RBI said in a statement.

The terms of reference for the working group include delineating the principles that will be required to be considered by banks while designing the credit risk models to be used for assessing and measuring expected credit losses.

The panel is expected to recommend factors that banks should consider for determining credit risk based on the guidance provided in International Financial Reporting Standards (IFRS) 9 and principles laid out by Basel Committee on Banking Supervision (BCBS).

Besides, the panel is entrusted with the task of suggesting the methodology to be used for undertaking external independent validation of the models and recommending prudential floors for provisioning.

"The recommendations of the working group would be duly factored in while framing the draft guidelines, which shall be put in the public domain for comments before issue of final guidelines," it said.

The RBI had released the discussion paper on "Introduction of Expected Credit Loss Framework for Provisioning by Banks" on January 16, 2023.

Since then, several comments have been received from stakeholders on the issues flagged in the discussion paper. These comments especially with regard to regulatory stance are being examined by the RBI.

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