Paper Number :WP26/2023
Publication Date :June 1, 2023
This paper describes probability of default (PD) analysis for Corporate Bonds, Debentures, Preference Shares of the Nature of Debt and Refinance Exposures to Banks. We have empirically shown that the historical data on credit spreads published by FBIL are the appropriate basis for extracting the market-implied default probabilities associated with credit instruments like bonds and debentures issued by corporates and financial institutions. The methodology delineated in the paper and the resultant rating wise PD estimates would enable Banks, Financial Institutions and Investors to understand the portfolio credit risk positions. The derived PDs will be useful for estimating the forward-looking expected credit loss based provisioning under IFRS for exposures to market based credit instruments and also for exposures to banks and refinance portfolios where historical default incidents are very low.