Expected Credit Loss (ECL) based framework

Daily News Analysis 5th October 2023 (The Hindu)

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Here are the topics covered for  5th October 2023:Quantum dots, Global Infrastructure, Expected Credit Loss (ECL) based framework, New Defence Indigenisation list, Ujjwala Yojana, Directorate of Enforcement (ED)


Table of Content
  •  GS-3: Quantum dots, Global Infrastructure, Expected Credit Loss (ECL) based framework, New Defence Indigenisation list       
  • Facts for Prelims: Ujjwala Yojana, Directorate of Enforcement (ED)


Quantum dots


  • The 2023 Nobel Prize in chemistry was awarded to Moungi G. Bawendi, Louis E. Brus and Alexei I. Ekimov for the discovery and synthesis of quantum dots. 


What are Quantum dots?

  • Quantum dots are semiconductor nanocrystals that have unique electronic and optical properties due to their size and structure. They are typically composed of elements from groups II-VI or III-V of the periodic table, such as cadmium selenide (CdSe), cadmium sulfide (CdS), or indium arsenide (InAs).
  • Quantum dots are very small, typically ranging from 2 to 10 nanometers in diameter. Because of their small size, they exhibit quantum mechanical effects, which lead to size-dependent properties. This means that the colour of light they emit, for example, can be tuned by changing their size.
  • The emission wavelength of quantum dots can be controlled by adjusting their size during synthesis. This property is particularly important in applications like displays, where precise control over colours is needed.



  • Quantum dots can emit light very efficiently, which makes them attractive for applications like light-emitting diodes (LEDs) and displays. They have the potential to produce more vibrant and energy-efficient displays compared to traditional technologies.
  • Quantum dots are used in QLED displays to enhance colour reproduction and brightness. They are employed as the colour-converting layer in the backlighting of modern high-definition televisions and monitors.
  • Quantum dots are used as fluorescent markers in biological imaging and microscopy. Their tunable emission spectrum allows for multiplexed imaging, where different quantum dots can be used to label different targets in a biological sample.
  • Quantum dots can be used as carriers for delivering drugs or therapeutic agents to specific targets within the body.
  • Quantum dots are also used in photovoltaic cells to improve the absorption and efficiency in converting solar light into electricity.



  • Toxicity and Environmental Impact: Quantum dots often contain toxic elements like cadmium, posing health and environmental risks. Research is focused on non-toxic alternatives and eco-friendly production and disposal methods.
  • Stability and Degradation: Quantum dots are sensitive to environmental factors like air, light, and moisture, posing challenges for long-term stability.
  • Size Uniformity: Achieving consistent size and uniformity in quantum dot synthesis is crucial for optimal performance, but can be difficult to control.
  • Cost-Efficient Production: Producing high-quality quantum dots is costly. Researchers are striving to develop economical synthesis methods for broader commercial use.


Advancements in size control and stability will boost quantum dots\’ performance. They show immense promise in quantum computing, medical imaging, and renewable energy. Cross-disciplinary collaboration and standards are vital for their full potential. Anticipate widespread integration, revolutionizing industries. With careful research and responsible use, quantum dots will make a transformative impact on science and technology.


Global Infrastructure


  • Recent CDRI’s Biennial Report on Global Infrastructure Resilience: Capturing the Resilience Dividend provides a Global Infrastructure Risk Model and Resilience Index (GIRI) states that Global infrastructure faces annual losses of over USD 300 billion amid worsening climate impacts.


About CDRI’s report:

  • The Biennial Report on Global Infrastructure Resilience is a publication issued by the Cambridge Digital Resilience Institute (CDRI). This report provides a comprehensive overview of the state of global infrastructure and its resilience to various challenges, including natural disasters, cyber threats, and other disruptions.
  • The CDRI, through this report, aims to assess the vulnerabilities and strengths of critical infrastructure worldwide and to propose strategies and recommendations for enhancing their resilience. The report likely covers a wide range of sectors, including transportation, energy, water, telecommunications, and more.


Key findings of the report:

  • Around 30% of the average annual loss is associated with hazards such as earthquakes and tsunamis whereas 70% is associated with climate-related hazards like cyclones, floods, and storms.
  • The global average annual loss in infrastructure sectors and buildings is now in the range of $732– $845 billion taking into account climate change and that around 14% of 2021- 2022 global GDP growth is at risk.
  • The report highlighted that the annual investment required to address the infrastructure deficit, achieve the sustainable development goals, achieve net zero, and strengthen resilience by 2050 amounts to $9.2 trillion of which $2.84-$2.90 trillion must be invested in low-and middle-income countries.
  • The risk is not spread equally across sectors with around 80% of the risk concentrated in the power, transport, and telecommunications sectors.
  • Around 67% of the global value of infrastructure assets is concentrated in high-income countries Low and Middle-Income Countries carry the highest relative risk to their infrastructure.
  • Climate change has significantly increased the average annual loss(AAL). While high-income countries witness an increase in their total infrastructure AAL by 11 per cent, the figure could increase by 12 to 22 per cent in middle-income and 33 per cent in low-income countries.
  • Climate change will have a significantly greater impact in those countries with large infrastructure deficits, weak infrastructure governance, low fiscal capacity and limited private investment.


The findings and insights from this report are invaluable for policymakers, government agencies, businesses, and organizations involved in infrastructure planning and management. By understanding the current landscape and potential risks, stakeholders can make informed decisions to safeguard and improve the resilience of vital infrastructure systems.


Expected Credit Loss (ECL) based framework


  • The Reserve Bank of India (RBI) recently constituted a nine-member external working group to get independent views on Expected Credit Loss (ECL) based framework for provisioning by banks.



  • The Expected Credit Loss (ECL) based framework is a financial accounting standard used by banks and financial institutions to estimate and account for potential losses arising from credit risk associated with their lending and investment activities.
  • It is a part of the International Financial Reporting Standards (IFRS) and is also known as IFRS 9.
  • Under the ECL framework, financial institutions are required to recognize expected credit losses upfront, rather than waiting until the actual defaults occur. This is considered a more forward-looking approach compared to the previous \”incurred loss\” model, which only recognized losses when there was objective evidence of impairment.


The ECL framework involves three stages:

  1. Stage 1 (12-Month ECL): Initial recognition triggers recognition of expected credit losses likely to occur in the next 12 months for instruments without a significant increase in credit risk.
  2. Stage 2 (Lifetime ECL): Recognizes lifetime expected credit losses if there\’s a significant increase in credit risk and it\’s not considered low risk.
  3. Stage 3 (Lifetime ECL with Write-off): For credit-impaired instruments, lifetime ECL is recognized, and the asset is written down to the expected collectable amount.


Proposed ECL-based Framework

  • The key requirement under the proposed ECL-based Framework for Provisioning shall be for the banks to classify financial assets (primarily loans, including irrevocable loan commitments, and investments classified as held-to-maturity or available-for-sale) into one of the three categories – Stage 1, Stage 2 and Stage 3.
  • The classification will depend upon the assessed credit losses on them, at the time of initial recognition as well as on each subsequent reporting date and make necessary provisions.
  • Banks must adhere to specific principles when crafting credit risk models for evaluating expected credit losses. Additionally, they should take into account factors outlined in IFRS 9 and principles set forth by the Basel Committee on Banking Supervision (BCBS) to determine credit risk effectively.
  • The Reserve Bank of India’s proposal to implement expected credit loss (ECL)-based loss provisioning by banks could lead to a transitioning impact of 300-400 basis points, including the provisioning for ECL while shifting to the IND-AS accounting system.


The ECL framework requires financial institutions to consider a range of information, including historical data, current economic conditions, and forecasts, to estimate credit losses. This forward-looking approach is designed to provide a more accurate reflection of the credit risk associated with financial assets.


New Defence Indigenisation list 


  • The Defence Minister recently released the fifth Positive Indigenisation List (PIL) of 98 items which will be procured by the three armed services from indigenous suppliers in a staggered manner as per specified timelines.
  •  He also released the Indian Navy’s updated indigenisation roadmap, named Swavlamban 2.0.


About :

  • The Department of Military Affairs has compiled the fifth Positive Indigenisation List (PIL) after extensive consultations with stakeholders. This list focuses on replacing imported components in major defence systems, platforms, weapons, sensors, and munitions. These changes are expected to lead to concrete orders over the next five to ten years.


  • Some notable items on the indigenisation list include futuristic infantry combat vehicles, all-terrain vehicles, various types of unmanned aerial vehicles (UAVs), a medium-range precision kill system for artillery, test equipment for guided weapon systems, radars, and components for helicopters and aircraft.


  • This effort builds on the previous issuance of four PILs, encompassing a total of 411 military items. The overarching goal is to boost domestic defence production and reduce dependence on foreign imports.


  • At the Swavlamban 2.0 seminar organized by the Naval Innovation and Indigenisation Organisation (NIIO), the Defence Minister introduced 76 challenges for the defence industry as part of the 10th Defence India Start-up Challenges (DISC-10) and the Innovations for Defence Excellence (iDEX) programs. Additionally, five problem statements were presented under iDEX for Fauji, and two INDUS X challenges were launched under the INDUS-X Mutual Promotion of Advanced Collaborative Technologies (IMPACT) initiative, developed jointly by iDEX and the U.S. Department of Defence.


  • Navy Chief Admiral R. Hari Kumar emphasized the Navy\’s commitment to achieving self-reliance (atmanirbharta) by 2047, aiming for a strong and developed India. He stressed the importance of indigenous solutions to reduce vulnerabilities in the supply chain, particularly in light of disruptions caused by the COVID-19 pandemic and global conflicts.


  • The Navy has already initiated several projects to foster collaboration with domestic micro, small, and medium enterprises (MSMEs) and startups. These collaborations have led to the development of advanced technologies and the inclusion of new firms in the defence ecosystem. Procurement orders worth ₹200 crore have already been signed, with more contracts expected in the near future.


  • In summary, these developments underscore India\’s commitment to achieving self-reliance in defence production and strengthening partnerships with domestic industries, startups, and MSMEs to advance defence technology.


Facts for Prelims


Ujjwala Yojana

  • The Pradhan Mantri Ujjwala Yojana (PMUY), initiated on May 1, 2016, aims to provide deposit-free LPG connections to adult women members of economically disadvantaged households nationwide.


  • The Ministry of Petroleum and Natural Gas (MOPNG) introduced PMUY to ensure clean cooking fuel, such as LPG, is accessible to rural and underprivileged households that traditionally used fuels like firewood, coal, and cow-dung cakes.


  • To extend coverage to additional impoverished households, PMUY phase-2 (Ujjwala 2.0) was launched in August 2021.


  • Ujjwala 2.0 includes a special provision for migrant families, allowing them to use a self-declaration in lieu of a Proof of Address and Ration Card when applying for a PMUY connection.

Directorate of Enforcement (ED)

  • The Directorate of Enforcement (ED) operates under the Department of Revenue, Ministry of Finance. Its primary mandate is the enforcement of economic laws, with a key focus on preventing and combating financial crimes, particularly those related to money laundering.


  • Headquartered in New Delhi, the ED is headed by the Director of Enforcement. It maintains five regional offices in Mumbai, Chennai, Chandigarh, Kolkata, and Delhi, each led by Special Directors of Enforcement. Additionally, there are 10 Zonal offices headed by Deputy Directors, and 11 sub Zonal Offices, each overseen by an Assistant Director.


  • Since November 2021, the tenure of key positions within the ED has been extended from two to up to five years. It\’s important to note that the ED does not have the authority to take action on its own initiative. Instead, it relies on complaints lodged with other agencies or the police, after which it conducts investigations to identify the accused.


  • The ED is tasked with investigating and prosecuting cases related to violations of the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA). It also possesses the authority to attach and seize assets acquired through illegal means.


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