RBI proposes regulatory principles for managing model risks in credit

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RBI proposes regulatory principles for managing model risks in credit - Business Standard

Quick Summary:

The Reserve Bank on Monday proposed to lay down principles for management of model risks in credit for banks and other regulated entities with a view to ensuring prudence and robustness.

Inherently, model outputs are exposed to uncertainties as they are based on assumptions which may not manifest in the envisaged ways and may take different forms in a real-world scenario, the RBI said in a draft circular on Regulatory Principles for Management of Model Risks in Credit'.

Regulated Entities (REs) generally use various models as part of their credit management, including for credit appraisal, borrower scoring, pricing, and risk management, among others.