This course covers Loss Given Default (LGD) Assumption Design, which involves designing assumptions that estimate the proportion of exposure likely to be lost if a borrower defaults within the Personal Loan Credit (Salaried/Self Employed) workflow, particularly for accounts requiring structured assessment, clearly defined boundaries, and independent review. It evaluates key dimensions such as recovery behaviour patterns, collateral considerations (where applicable), cost of recovery actions, and income stability assessment, with each representing a distinct assessment dimension that requires independent validation and documented rationale before any credit action is finalized.
It is distinct from portfolio diversification strategy, as it focuses on the structured estimation of loss severity at an exposure level—incorporating expected recoveries, timelines, and costs to derive realistic LGD assumptions used in pricing, provisioning, and risk assessment, rather than broader strategies that guide overall exposure distribution. Within Pricing, Tenor & Risk–Reward Calibration, the credit analyst executes the assessment, completes documentation, and flags exceptions for manager review within Personal Loan Credit (Salaried/Self Employed) credit files, shaping escalation scope and credit committee priorities.