The situation
A has exposure ₹50 crore, PD 2% and LGD 40%. B has exposure ₹20 crore, PD 4% and LGD 60%. Use a simplified single-period calculation.
Your task
Which facility has higher modeled expected loss?
Reveal step-by-step solution
Set up the problem
A expected loss = ₹50 × 0.02 × 0.40 = ₹0.40 crore.
Work through the numbers
B expected loss = ₹20 × 0.04 × 0.60 = ₹0.48 crore.
Interpret the result
B has ₹0.08 crore more expected loss despite the smaller exposure. A full allowance may require multiple scenarios and discounting.
What to remember
Align PD horizon and exposure at default. Include recovery assumptions in LGD.