Case Study 24: ECL Methodology Modeling

For a Large NBFC in India

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  • The NBFC is one of the leading Private sector NBFCs in India.
  • They have a large Lending portfolio comprising Retail and Corporate .
  • The Company wanted to validate the ECL methodology using macroeconomic PD modelling, incremental PD modelling & LGD modelling.
  • The Portfolio comprises of LAP, Business loans, Home Loans etc.
  • Macroeconomic factors like Nominal GDP, Real GVA, Real Agriculture, Food Credit etc for India for the prediction of transition PD bucket.
  • Linked historic Transition PD buckets (quarterly) for each risk segments through Principal Component Analysis and Logistic Regression.
  • Factored U-shaped and V-shaped recovery over next five years.
  • We provided the projected quarterly PDs and annual PDs.
  • Using the model and macro-economic projections, we projected forward looking segment wise defaults and PIT PDs .
  • Project PDs product-wise and Rating/Bucket-wise, Transit matrix of PDs were also given.
  • We projected macro-factors using economist forecasts and statistical modeling.
  • Implemented Markov-Chain model on the annual transition probabilities (PT PDs) to calculate the cumulative state transition metrics.
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