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CMA Final · Corporate Financial Reporting · NBFCs - Provisioning Norms, Accounting and Reporting

An NBFC following Ind AS 109 has these exposures. Stage 1: EAD Rs 200 crore, 12-month PD 1%, LGD 50%. Stage 2: EAD Rs 50 crore, 12-month PD 2%, lifetime PD 8%, LGD 50%. Stage 3: EAD Rs 10 crore, LGD 40%. Treating Stage 3 PD as 100%, what is the total ECL allowance?

The total ECL is Rs 7.0 crore. Stage 1 gives Rs 1 crore on 12-month PD, Stage 2 gives Rs 2 crore on lifetime PD of 8%, and Stage 3 gives Rs 4 crore at 100% PD with 40% LGD. Using 12-month PD for Stage 2 would understate the allowance.

  1. ARs 7.0 croreCorrect
  2. BRs 5.5 crore
  3. CRs 13.0 crore
  4. DRs 3.0 crore

Explanation

Stage 1 = 200 x 1% x 50% = Rs 1.0 crore (12-month ECL). Stage 2 uses lifetime PD: 50 x 8% x 50% = Rs 2.0 crore. Stage 3 = 10 x 100% x 40% = Rs 4.0 crore. Total = Rs 7.0 crore. Rs 5.5 crore uses the 12-month PD for Stage 2, and Rs 13.0 crore ignores LGD in Stage 3.

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