**ECL for Loan Portfolio** **– Impairment**

**Methods for computing Expected Credit Loss for Loans**

- Historical Loss Method
- Roll Rate Method
- Transition Matrix Method

**Key highlights:**

- Computation of Expected Credit Loss (ECL) as per the requirements of the Accounting Standard
- Determine appropriate groupings of loans that share common risk characteristics
- Compute the Probability of Default and Loss Given Default by using the appropriate method / model
- Apply macro-economic data to get multipliers for different scenarios
- Determine the probability weights for each scenario to arrive at the probability-weighted expected credit loss

**Data upload**

- Upload the raw data covering the loan master and performance files
- Input the multipliers for various segments

**System highlights:**

- Cloud-based application with full security
- Three User Profiles provided in the Customer Portal:

- Accountant role – Multiple accountants can enter the data. Each accountant can view or edit the data uploaded by him/her
- Manager role – One person responsible for the processed output, who can view and edit all data entered by any accountant. He/she can process the data and generate all reports
- Auditor role – One auditor login to view all the input data and reports available in the system. Can view the entire audit trail for all transactions and processes

- Dashboard providing details of ECL based on multiple scenarios for defined segments

**Project loans using Transition Matrix**

For loans that are rated by rating agencies, expected credit loss is obtained through the transition matrix published by such rating agencies. In a transition matrix table, default rate denotes the number of defaulters among rated firms during a specified period, expressed as a percentage of the total number of outstanding ratings. Default rates are calculated at each rating level over multiple periods.

Transition rate indicates the number of instances when credit ratings have changed over a specified period. Transition rates are calculated for the entire rated population or for a specified rating level. Default usually signifies any missed payment on a rated instrument. Transition rates indicate the instances of a given rating migrating to other rating categories. Transition rates are relevant for finding out the probability that a rated entity would default given its current rating.