Regulated Entities (REs) generally use various models as part of their credit management, including for credit appraisal, borrower scoring, pricing, risk management, etc. With a view to addressing potential risks from use of such models and ensuring robustness in the process of model deployment by REs for credit decisions, the Reserve Bank of India today released the draft circular on ‘Regulatory Principles for Management of Model Risks in Credit’. The Comments on the draft circular are invited from public/stakeholders by September 4, 2024.

Comments/ feedback may be forwarded to:

The Chief General Manager
Credit Risk Group
Department of Regulation, Central Office
Reserve Bank of India, 12/13th Floor,
Shahid Bhagat Singh Marg,
Fort Mumbai – 400 001
or
by email

(Puneet Pancholy)  
Chief General Manager

Regulated entities must adopt a board approved model risk management framework for credit models, with independent validation and supervisory review. RBI's draft circular requires Regulated Entities to implement a Board approved model risk management framework for credit models covering the full model life cycle, including a Model Inventory, Board/Risk Management Committee approval for deployments and material changes, and detailed documentation. Independent validation-before deployment and at least annually or after material events-must assess assumptions, data accuracy, compliance, documentation and back testing, address bias and limitations, and report ex ante benchmarked results to the Board. Outsourced models remain the RE's responsibility and are subject to supervisory review, with timelines for implementation and validation.