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

Under Ind AS 109 as applied by NBFCs, a loan of ₹10,00,000 is classified in Stage 2. The 12-month probability of default is 4%, lifetime probability of default is 15%, loss given default is 40% and exposure at default is ₹10,00,000. The expected credit loss to be recognised is:

Stage 2 assets carry lifetime expected credit loss. Multiplying lifetime default probability of 15% by loss given default of 40% and exposure of ₹10 lakh gives ₹60,000. Using the 12-month probability would give ₹16,000, which is the Stage 1 measure.

  1. A₹60,000Correct
  2. B₹16,000
  3. C₹1,50,000
  4. D₹4,00,000

Explanation

Stage 2 requires lifetime ECL. ECL = lifetime PD × LGD × EAD = 15% × 40% × 10,00,000 = ₹60,000. The ₹16,000 figure uses the 12-month PD, which applies to Stage 1 and is the key mistake.

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