The Reserve Bank of India on Wednesday ( 4 october 2023) constituted an external working group on expected credit loss (ECL) based framework for provisioning by banks.

• This move comes after RBI released a discussion paper in January this year on shifting from the incurred-loss approach to the ECL model, a transition aimed at making the banking system more resilient.
• The ECL model proposed by the regulator, where banks have to recognize stress much earlier, is in contrast to the existing regime where banks make provisions after incurring losses.
• The working group chaired by R. Narayanaswamy, former professor of IIM Bangalore, will have domain experts from academia and industry as also representatives from select banks, according to RBI’s press release.