What is the Full Form of ECL?

The full form of ECL is Expеctеd Credit Loss. It is a measure of the potential lossеs that a lender expects to incur on a loan or portfolio of loans. It is calculated by considering the opportunity of dеfault, the loss if the loan dеfaults, and the exposure at dеfault. In this blog, we will try to understand all about this credit loss system that is implemented by RBI in India.

ECL (Expected Credit Loss) by way of RBI

ECL, or Expected Credit Loss, is a way of accounting for credit score threat that is used by banks to estimate the capacity of paying or destiny losses on their loan application. It is a forward-looking approach that takes into consideration all feasible results, including the possibility of default when calculating the expected loss.

The Reserve Bank of India (RBI) has proposed the banks to adopt the ECL method for prescribing pointers for loss provisioning via banks. This is a large alternative to the prevailing incurred loss model, which simply recognizes losses when they have passed off.

Also Read – What is the Full Form of FD in Banking?

What are the Benefits of the use of ECL?

There are several benefits to using the ECL method, they are as follows – 

• Facilitates banks to better manage their credit risk.
• Enables banks to construct more potent capital buffers.
• It improves the transparency and comparison of financial statements throughout banks.
• Allows banks to become aware of and address potential losses earlier.
• It can help to reduce the hazard of systemic financial crises.

Other Full Forms of ECL

ECL also can stand for:

• Electronic Component Laboratory
• Eclipsed Lunar Year
• Environmental Change Letters
• Energy Conservation Law

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