New RBI Grade B 2025 Notification will come Soon! Enroll Here

    Question

    To mitigate concerns relating to model risk and

    significant variability in expected credit loss models, the Discussion Paper proposes the following mitigants, EXCEPT:  
    A Issuing broad guidance by RBI for designing credit risk models Correct Answer Incorrect Answer
    B Requiring independent validation of expected credit loss models Correct Answer Incorrect Answer
    C Specifying a prudential floor for provisions based on comprehensive data analysis Correct Answer Incorrect Answer
    D Allowing banks to use any internal assessment without validation Correct Answer Incorrect Answer
    E Prescribing a non-exhaustive list of disclosures by banks Correct Answer Incorrect Answer

    Solution

    Allowing banks to use any internal assessment without validation     Explanation: The Discussion Paper proposes independent validation of expected credit loss models to verify compliance with RBI guidance, sound reasoning, calibrated use of relevant data, proper back-testing, and internal validation to remove bias. This is to mitigate concerns relating to model risk and variability.  

    Practice Next

    Relevant for Exams: