Full formBanking & Finance
EADstands forExposure at Default
Full Form of EAD
What is EAD?
Exposure at Default (EAD) is a key parameter used in credit risk measurement under the Basel II and Basel III frameworks adopted by the Reserve Bank of India (RBI). It represents the total value a lender is exposed to when a borrower defaults on a loan or credit facility. In Indian banking, EAD helps banks calculate the amount of capital they must set aside to absorb expected losses. It is determined at the time of default and includes drawn balances, undrawn commitments (like credit lines), and any accrued interest or fees. Banks in India use standardized or internal ratings-based approaches to estimate EAD for different asset classes, such as corporate loans, retail advances, and agricultural credit. The accurate computation of EAD is critical for maintaining adequate capital adequacy ratios and complying with RBI’s prudential norms. For students preparing for banking exams like IBPS, SBI PO, or RBI Grade B, understanding EAD along with Probability of Default (PD) and Loss Given Default (LGD) is essential to grasp the fundamentals of risk management in the Indian financial system.
EAD का फुल फॉर्म
एक्सपोज़र एट डिफॉल्ट
Example
The bank's risk department revised the EAD estimates for its small business loan portfolio after observing higher utilization of sanctioned credit limits.
EAD — frequently asked questions
What is the full form of EAD?
EAD stands for Exposure at Default, which quantifies a bank's total exposure to a borrower at the time of default.
How is EAD used in Indian banking exams?
EAD is a key concept in risk management questions for exams like RBI Grade B and IBPS, often asked alongside PD and LGD to test understanding of Basel capital adequacy.
What factors influence the calculation of EAD?
EAD depends on the drawn and undrawn portions of credit facilities, loan type, maturity, and the credit conversion factor (CCF) applied to off-balance sheet items.