Collateral Value Based Method

The Collateral Value Based (CVB) method enables allowance computation for collateral-dependent assets as per CECL requirements. Computation of allowance for credit loss for collateral dependent assets is performed using the following steps:

Identification of collateral dependent financial assets: Following conditions must be met to set the collateral dependent loan flag to Yes:

Threshold, the value of collateral post adjustment for Haircut and Recovery Cost, must be more than 70% of the book value, this is required to meet the Substantial criteria. Also, DPD for Retail Portfolio must be greater than 90 days, for DPD for Wholesale Internal Rating Rank must be less than 20, or Credit Score for Retail Portfolio (Fico Score) must be less than 575, this is required to meet the financial difficulty criteria.

• Computation of collateral value, adjusted for the cost to sell, if applicable: LLFP computes the adjusted value of the collateral based on the following formula - Adjusted Collateral Value = {(1-Haircut)*Collateral Value-Recovery Cost}.
• Computation of amortized cost of the financial asset: Amortized cost is calculated based on the following formula - Amortized Cost = (N_CARRYING_AMOUNT_RCY-((N_FEES_EIR+N_DEFERRED_CUR_BAL)*N_RCY_CONVERSION_FACTOR))).
• Computation of allowance for credit loss: The allowance is computed based on the following formula - If the Adjusted Collateral Value is greater than or equal to the Amortized Cost of the financial asset, then the Allowance is calculated as zero. Otherwise, Allowance is calculated as the difference between the Amortized Cost of the financial Asset and Adjusted Collateral Value.