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

Vistara Credit, an Ind AS NBFC, has a loan with exposure at default of ₹2,00,00,000. At the start of the year it was in Stage 1 with a 12-month PD of 3% and LGD of 45%, and the allowance was held on that basis. At the year end the loan shows a significant increase in credit risk and moves to Stage 2 with a lifetime PD of 15% and the same LGD. Ignoring discounting, what incremental impairment charge goes to profit or loss on the migration?

The incremental charge is ₹10,80,000. The Stage 2 lifetime ECL is ₹2 crore × 15% × 45% = ₹13,50,000, and the ₹2,70,000 allowance already held as Stage 1 12-month ECL is deducted, leaving the additional amount charged to profit or loss.

  1. A₹10,80,000Correct
  2. B₹13,50,000
  3. C₹2,70,000
  4. D₹30,00,000

Explanation

Stage 1 allowance = 2,00,00,000 × 3% × 45% = ₹2,70,000. Stage 2 lifetime ECL = 2,00,00,000 × 15% × 45% = ₹13,50,000. The incremental charge is 13,50,000 − 2,70,000 = ₹10,80,000. ₹13,50,000 ignores the allowance already held.

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