Treatment of collateral value for expected credit losses

Treatment of collateral value for expected credit losses

How should the value of collateral be treated while measuring expected credit losses?

For the purpose of measuring expected credit losses, the estimate of expected cash shortfalls shall reflect the cash flows expected from collateral and other credit enhancements that are part of the contractual terms and are not recognised separately by the entity.

The estimate of expected cash shortfalls on a collateralised financial instrument reflects the amount and timing of cash flows that are expected from foreclosure on the collateral less the costs of obtaining and selling the collateral, irrespective of whether foreclosure is probable (ie, the estimate of expected cash flows considers the probability of a foreclosure and the cash flows that would result from it).

Consequently, any cash flows that are expected from the realisation of the collateral beyond the contractual maturity of the contract should be included in this analysis.

Any collateral obtained as a result of foreclosure is not recognised as an asset that is separate from the collateralised financial instrument unless it meets the relevant recognition criteria for an asset in this or other Standards.

Ind AS Accounting Standards

Expected Credit Loss

Ind AS Accounting Standards

Key takeaways from the RBI notification dated 12th Nov 2021

How is the expected credit loss measured

What are the three stages of impairment loss

Simplified Approach for ECL for trade receivables

Recognition of interest revenue during all three stages

What is meant by significant increase in credit risk

Impact of impairment requirements on first-time adoption

Approaches for assessing credit risk

What is the new Expected Credit Loss Model

Presentation of impairment loss for debt instruments at FVOCI

Impairment loss allowance on performing assets

Impairment for debt instruments classified as FVOCI

New impairment methodology