Cohort Level Parameters for ECL Calculation
The Cohort-level parameters, required for ECL calculation, are determined using the parameters of the accounts belonging to that Cohort. This is determined in two steps:
The first step includes identifying the parameters or values for dimensions that define the formation of a Cohort; these values are unique across all the accounts of a Cohort.
The second step includes identifying the parameters or values for dimensions that are derived from the account level values these values differ across the accounts of a Cohort and logic is used to arrive at Cohort level values, for example, Sum, weighted average, and so on.
- Step 1: Dimensions used for Cohort Formation are the following:
- Basel Customer Type
- Basel Product Type
- IFRS Stage
- Methodology
- Cash Flow Undrawn Flag
- Current Internal Rating for non-Retail accounts or DPD Band for Retail accounts
- Time to Maturity band
- Currency
For these dimensions or parameters, the unique values of each Cohort formed are populated as the value against this Cohort.
- Step 2: Other parameters required for ECL Calculation are the following:
The other set of parameters that are specific to ECL calculation and the values are arrived at a group level using the logic, as provided in the following table:
Table 10-3 Fields in the parameters specific to ECL calculation
| Columns | For Cohort | Formula |
|---|---|---|
| Account Start Date | Y | MIN |
| Original Maturity Date | Y | MAX |
| Revised Maturity Date | Y | MAX |
| Cash Flow Undrawn Flag | Y | As per Cohort |
| Collective Individual Flag | Y | G |
| Basel Asset Class | Y | As per Cohort |
| Basel Customer Type | Y | As per Cohort |
| Basel Product Type | Y | As per Cohort |
| Carrying Amount in Natural Currency | Y | Sum |
| CCF Percent | Y | Average |
| Counterparty Rating | Y | As per Cohort |
| Delinquency Band | Y | As per Cohort |
| IFRS Stage | Y | As per Cohort |
| Issuer Rating | Y | As per Cohort |
| LGD Percent | Y | Weighted Average |
| ECL Computation Methodology | Y | As per Cohort |
| MIS Date | Y | As per Run |
| Run | Y | As per Run |
| Undrawn Amount in Local Currency | Y | Sum |
| Currency | Y | As per Cohort |
| Remaining Maturity Band | Y | As per Cohort |
Grouping Contractual Cash Flows: In the case of a Cohort with Cash Flow methodology, the cash flows related to all accounts within the given Cohort are grouped based on the Bucket IDs assigned. All the cash flows of all related accounts are considered in this. At a bucket level, the Principal and Interest values of all related cash flows are summed up. After being grouped, the bucket start date, bucket end date, or data corresponding to the middle of the bucket is assigned as the cash flow date for that specific bucket.
Note:
The weighted average of Cohorts is done at a term structure level.Weighted average Effective Interest Rate: The Effective Interest rate of the Cohort is calculated as the weighted average of EIR values of individual accounts which are part of the Cohort.
Grouping Forward Exposures: If a Cohort has been assigned with a Forward Exposure methodology, the forward exposure values related to all accounts within the given Cohort are grouped based on the Bucket IDs assigned earlier. All the Forward Exposures of all related accounts are considered for this. At a bucket level, the forward exposures are summed up. After being grouped, the bucket start date, bucket end date, or the data corresponding to the middle of the bucket is assigned as the cash flow date for that specific bucket. For more information about the Forward Exposure method, see the Forward Exposure section.
Once the preceding steps are performed, the Cohorts are treated as individual accounts and the ECL values are computed based on the methodology that has been assigned to each Cohort.