Integrated Annual Report 2024-25 408 Inputs considered in the ECL model In assessing the impairment of loans assets under Expected Credit Loss (ECL) Model, the loan assets have been segmented into three stages. The three stages reflect the general pattern of credit deterioration of a financial instrument. The differences in accounting between stages, relate to the recognition of expected credit losses and the calculation and presentation of interest revenue. The financial services business categorises loan assets (except trade advances) into stages based on the days past due status: — Stage 1: 0-30 days past due — Stage 2: 31-90 days past due — Stage 3: More than 90 days The financial services business categorises trade advances into stages primarily based on the days past due status: — Stage 1: 0-60 days past due — Stage 2: 61-90 days past due — Stage 3: More than 90 days Assumptions considered in the ECL model The financial services business has made the following assumptions in the ECL Model: — “Loss given default” (LGD) is common for all three Stages and is based on loss in past portfolio. Actual cash flows are discounted at loan EIR rate for arriving loss rate. — “Probability of Default” (PD) is applied on Stage 1 and Stage 2 on portfolio basis and for Stage 3 PD at 100%. Estimation Technique The financial services business has applied the following estimation technique in its ECL model: “Probability of Default” (PD) is an estimate of likelihood or risk of default occurring over a particular time horizon. The measurement of risk of defaults is computed on homogenous portfolios, generally by nature of loans, tenors, underlying collateral, geographies and borrower profiles. The default risk is assessed using PD (probability of default) derived from past behavioural trends of default across the identified homogenous portfolios. These past trends factor in the past customer behavioural trends, credit transition probabilities and macroeconomic conditions. The assessed PDs are then aligned considering future economic conditions that are determined to have a bearing on ECL. The assessed PDs are then aligned considering future economic conditions that are determined to have a bearing on ECL. – Loss given default is calculated based on discounted actual cash flow on past portfolio in default along with reversals. Forward Looking Information In calculating the expected credit loss rates, the financial services business considers historical loss rates on portfolio over a period which covers most external factors like drought, government and policy changes etc and these historical PDs are converted into forward looking PDs considering macro-economic variables like agricultural, GDP/Government consumption related parameters. Assessment of significant increase in credit risk When determining whether the risk of default has increased significantly since initial recognition, the financial services business considers both quantitative and qualitative information and analysis based on the business’s historical experience, including forward-looking information. The financial services business considers reasonable and supportable information that is relevant and available without undue cost and effort. The financial services business’s accounting policy is not to use the practical expedient that the financial assets with ‘low’ credit risk at the reporting date are deemed not to have had a significant increase in credit risk. As a result the financial services business monitors all financial assets and loan commitments that are subject to impairment for significant increase in credit risk. Definition of default The financial services business considers a financial asset to be in “default” and therefore Stage 3 (credit impaired) for ECL calculations when the borrower becomes 90 days past due on its contractual payments. Since financial services business portfolio predominantly includes retail loan portfolio with around 3 million loan accounts making it difficult to define default at an individual loan account, it has considered 90 days past due as the event of default. The same is also in line with the regulator’s definition of default of 90 days past due. Policy for write off of Loan Assets The gross carrying amount of a financial asset is written off when there is no realistic prospect of further recovery. This is generally the case when the financial services business determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write- off. However, financial assets that are written off could still be subject to enforcement activities under the recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. 39. Financial instruments (Continued)
RkJQdWJsaXNoZXIy NTE5NzY=