the-playbook.in

 This is not a textbook explanation. This is how I actually think about portfolios when someone asks: “What will my book look like after 6 months?” “Why are my NPAs rising even though disbursements are stable?” “What happens if my collection efficiency drops slightly?” Let’s start from first principles and build our way up. The easy part. Total AUM forecasting If all you care about is overall AUM , life is simple. You take: Opening AUM Add fresh disbursements Subtract normal amortisation Subtract prepayments And you get closing AUM. For example: Particulars Amount (₹ Cr) Opening AUM 100 Disbursements +20 Normal amortisation −8 Prepayments −2 Closing AUM 110 This works fine if you don’t care where the AUM is sitting . But lending is never that simple. Why bucket-wise AUM actually matters Most real decisions depend on where the AUM sits, not just how much. Bucket-wise AUM is required for: ECL provisioning Understanding delinquency build-up Estimati...

I didn’t start my career in risk modelling. I’m an accountant by training. My early years were spent in accounting and finance roles, working on things like OPEX and CAPEX planning, budgets, and variance tracking. Numbers, yes. But not credit models. Statistically, my toolkit was basic. Mean, median, standard deviation. Some idea of correlation, regression, and probability from textbooks. Nothing fancy. No machine learning. No advanced econometrics. So when I say this, I mean it honestly: If I could understand ECL and work with it comfortably, almost anyone in finance can. ECL looks complex mainly because of how it’s presented, not because of what it’s trying to do. At its core, ECL is built around one very practical question: If this borrower fails to pay in the future, how much will I realistically lose? Everything else exists only to answer this question in a structured, regulator-acceptable way. Before we talk about ECL, let’s talk about provisioning When I was in core fi...