Discussion/Consultation papers and Publications

Regulatory updates

Updates from RBI

Draft circular on Regulatory Principles for Management of Model Risks in Credit (Draft circular on model risks management)

Regulated Entities (REs) use various models in the credit management life cycle- this includes borrower selection, credit scoring/rating, pricing, risk management, credit loss provisions, etc.

However, model outputs are exposed to uncertainties as they are based on assumptions which may not manifest in envisaged ways. Accordingly, REs are exposed to model risks.

With a view to ensure prudence and robustness in the use of such models, RBI has proposed to lay down broad regulatory principles on model development and deployment, model validation and overall governance and oversight on credit risk models.

It has been proposed that the existing guidance note on credit risk management would be repealed as a result of issuance of the Draft circular on model risks management.

To access the text of the Draft circular on model risks management, please click here