Probability of Default (PD) is the likelihood that a borrower will fail to repay a loan within a specified time period.
Probability of Default is a key concept in credit risk management used by banks and financial institutions to assess the risk of lending.
It estimates the chance that a borrower will default on obligations, helping lenders decide whether to approve loans and at what interest rates.
In India, risk frameworks are influenced by guidelines from the Reserve Bank of India and global standards like Basel norms.
"If a borrower has a PD of 5%, there is a 5% chance they may default on the loan within the defined period."