( ecl ) models rather than incurred loss models. in principle, the approach requires a credit institution to estimate expected credit losses based on forward - looking estimations rather than wait for credit losses to be incurred before making corresponding loss provisions. 27. however, banks in india follow the “ incurred loss ” approach for loan loss provisioning, while the bigger non - banking financial companies ( nbfcs ) are following the more forward looking “ expected credit loss ” approach for estimating credit losses. therefore, to achieve global convergence in regulations, we propose to issue a discussion paper on introduction of a framework on expected credit loss ( ecl ) for banks. the idea is to formulate principle - based guidelines, supplemented by regulatory backstops wherever necessary. the discussion paper would seek to solicit comments from all the stakeholders, including the business community, on the proposed approach and the final contours of the transition will take into account the feedback received. concluding remarks 28. the last two years have been tough on everyone but as individuals and a nation we have exhibited resilience and fought our way back. as we slowly step into the post pandemic world, we must strive to be ahead of the curve in designing and nurturing a financial system that is resilient and sustainable. as a closing thought i would like to leave you with a quote by nelson mandela : “ the greatest glory in living lies not in never falling, but in rising every time we fall ” and indeed, we shall rise strong. wishing you all the very best! thank you. * * * * *

radical changes which are designed to give greater flexibility to banks in the management of their investment portfolio while addressing concerns through enhanced disclosure. the idea is to align the prudential framework with global standards, while retaining elements which are germane to the domestic context. some of the proposals in the discussion paper are symmetric recognition of fair value gains and losses, removal of various restrictions on investment portfolio such as the ceilings on investments in held to maturity ( htm ), allowing non - slr securities to be included under held to maturity ( htm ) book, etc. the proposals in the dp, especially those on disclosures, would promote transparency and market discipline while giving the increased degree of freedom to banks. we are in advanced stages of finalising the revised norms based on feedback received and hope to issue guidelines on the new framework soon. 24. another issue that is engaging our attention is the framework for provisioning on loan exposures. currently, banks operating in india are required to make loan loss provisions on incurred loss model, wherein provisions are made after occurrence of default. however, loan default itself is a lagging indicator of stress, or more to say an outcome of build - up of stress over a period in the loan account. thus, incurred loss approach is inefficient since it may prove pro - cyclical during economic downturns which can severely impact the health of banks as well as the financial system. 25. this also meant that recognition and crystallisation of credit risk usually lags the actual increase in credit risk for the banks. such delays in recognizing expected losses under an “ incurred loss ” approach were found to exacerbate the downswing during the financial crisis of 2007 - 09. faced with a systemic increase in defaults, the delay in recognizing loan losses resulted in banks having to make higher provisions which eroded the capital maintained precisely at a time when banks needed to shore up their capital, thereby affecting their resilience and exacerbating the systemic risks. further, the delay in recognizing loan losses and consequent higher dividend pay - outs reduced internal accruals to the capital. 26. this experience prompted the g - 20 and the basel committee on banking supervision ( bcbs ) to recommend to accounting standard setters to modify the provisioning practices to incorporate a more forward - looking approach rather than to require the losses to happen before they are recognized. this encouraged the move towards adoption of provisioning standards that require the use of expected credit loss