Reporting can be really tedious and stressful when it comes to crucial regulatory and compliance processes, like IRAC, ECL, and NPA etc. Seemingly minor errors can invite unforeseen scrutiny and at times, even penalties.
Let us understand what these processes are and how AGT can help you establish the most reliable reporting practices and therefore achieve more robust financial compliance.
What are Non-Performing Assets (NPAs)?
An asset becomes non-performing when the borrower defaults on the repayment of the loan. There are different methods of reporting information related to NPAs mandated by the Reserve Bank of India (RBI) for banks and NBFCs. Expected Credit Loss (ECL) and Income Recognition and Asset Classification (IRAC) are the methods discussed in this article.
What is Expected Credit Loss (ECL)?
Expected Credit Loss (ECL) is a method of accounting for credit risk based on the loss likely to occur on a loan or portfolio of loans. The bank or NBFC will be permitted to design and implement its own models for measuring ECL for the purpose of estimating loss provisions.
Why is ECL important?
As per the RBI guidelines in Ind-AS 109, there is a need to move to strong expected credit loss (ECL) provision method. Ind-AS 109 provides guidance for accounting based on expected credit loss model. The objective of this standard is to establish reporting principles that provide users of financial statements with relevant and useful information to assess the amount, timing and uncertainty of an entity’s future cash flows.
What are the challenges of ECL Reporting?
ECL calculation and reporting calls for the involvement of multiple stakeholders, interacting with multiple systems with different levels of access , contributing to complex financial data analysis. This means that, there are multiple components to ECL, such as Exposure at Default (EAD), Probability of Default (PD), Loss Given Default (LGD), and discount rate which require the consolidation of data from multiple sources to generate a final report. This makes it presents challenges with respect to ensuring error-free operation, data security or making the system tamper-proof, managing changes or updates and granting access to the right users at the relevant process stages.
What is Income Recognition and Asset Classification (IRAC)?
Income Recognition and Asset Classification (IRAC) are rules that prescribe when a loan should be declared as a non-performing asset (NPA). IRAC calculation is a multifaceted process that considers the payment status, risk assessment, regulatory guidelines, provisioning requirements, accounting standards, and internal policies of the bank or NBFC.
Why is IRAC important?
The Reserve Bank of India (RBI), as the country’s central banking authority, establishes regulatory guidelines with respect to income recognition and asset classification that banks or non-banking financial corporations (NBFCs) must follow. This helps in identifying and managing potential risks, ensuring that banks/ NBFCs are adequately prepared for any adverse developments in their assets. This also ensures that banks/ NBFCs set aside adequate funds to absorb the impact of non-performing assets, contributing to the overall financial stability of the banking sector.
What are the challenges of IRAC Reporting?
Banks or NBFCs often have diverse loan portfolios with varying risk profiles. While classifying assets across different sectors, industries, and types of loans, consolidation and tracking can pose as significant challenges. Besides, complex loan structures, involvement of multiple stakeholders and integration data across various systems can also create similar financial reporting challenges.
Banking regulations, including IRAC guidelines, may undergo changes over time. Staying compliant with evolving regulatory requirements and adapting reporting processes accordingly can be challenging as well.
AGT is completely familiar with these challenges and has developed a solution to achieve Automated ECL, IRAC and NPA Reporting.
How can AGT help overcome these challenges with its Compliance
1. Error-free reporting:
Our system enables data collection, analysis, and report generation resulting in nearly zero likelihood of errors compared to manual tasks. Automation and tracking ensure consistency and accuracy in the reporting process
2. Validation & Version Control:
Version control allows for meticulous tracking and management of changes made to data, documents, and reports of any format. This empowers organizations to maintain a comprehensive history of revisions, enable teams to collaborate seamlessly, roll back to previous states if necessary, and track the evolution of projects accurately.
3. Role-based User Management:
This approach ensures that various stakeholders have access to the resources necessary for their tasks, eliminating the risk of unauthorized access to sensitive information.
4. Audit Trails and Logs:
Through this, our solution can capture essential information such as user actions, system events, and data modifications in real-time. This ensures transparency and accountability as well as compliance with internal and regulatory standards.
5. Customized View of Reports:
Not all stakeholders require the same level of detail or the same format of data presentation. Keeping this in mind, AGT provides customizability to meet specific requirements of multiple users or user groups.
6. Flexibility to Incorporate Changes, Regulatory or Otherwise
We understand the dynamic nature of organizational processes and recognize the significance of agility and responsiveness when it comes to selecting a solution. AGT’s solution offers the flexibility to modify or update rules in the future to align with your evolving needs.
What are the benefits to your organization?
AGT’s solution not only streamlines operations but also fortifies the company’s reputation for accuracy, which is of paramount importance in finance and more so when it comes to compliance. Moreover, we help you eliminate any risk of potential penalties as a result of errors.
We provide a robust, centralized platform for managing and tracking financial data, ensuring that stakeholders have real-time visibility into transactions, analytics, and compliance measures. This transparency is crucial in building trust with clients, investors, and regulatory bodies.
3. Control over Data
In an era where data is a cornerstone of decision-making, AGT’s solution can empower banks and NBFCs with the tools to efficiently collect, manage, and analyze vast amounts of information to streamline the process of reporting in real-time.
In the ever-evolving financial reporting landscape, AGT’s comprehensive solutions for ECL, IRAC, and NPA reporting empower organizations with accuracy, transparency, and strong compliance. Revolutionize your reporting practices with AGT’s automated and flexible systems, mitigating risks and ensuring financial stability.