ICAI Publication on Expected Credit Loss Framework

The Institute of Chartered Accountants of India (ICAI) has issued a Guidance Note on Expected Credit Loss framework.

The transition to Ind AS 109 and its expected credit loss (ECL) framework marks a significant departure from traditional credit risk provisioning methods. Historically reliant on past trends and subjective judgments, financial institutions are now required to adopt a more forward-looking approach that considers historical data, current conditions, and future projections.

This shift has profound implications for banks and non-banking financial companies (NBFCs), impacting their capital and earnings. The ECL model requires a strong credit risk management framework, access to high-quality data, and active stakeholder participation.

This guidance material is designed to assist entities in navigating the complexities of Ind AS 109 and its ECL requirements.

Drawing on insights from Ind AS 109, 107, and 32, as well as its international counterparts, IFRS 9 and IFRS 7, this publication provides a detailed review of the essential ideas and practical applications.

In this guidance note, illustrative examples and frequently asked questions are also incorporated to enhance understanding and facilitate implementation.

However, it is important to note that this guidance is not designed to substitute professional judgment or to provide definitive interpretations. It is a helpful resource for companies looking to understand and efficiently apply the ECL framework.

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