What is ERV Full Form in Banking?
The ERV Full Form in Banking is Estimated Recovery Value. It is the projected value of an asset that can be recovered in the event of liquidation. Estimated recovery values might vary greatly depending on the type of asset, because the recovery rate for certain assets, such as cash, can be 100%, while the recovery rate for other assets, such as inventories and third-party advances.
How is ERV estimated?
The ERV is estimated using criteria such as collateral value, market conditions, and the chance of recovery via legal or other means. It is critical for credit risk management and assessing a financial institution’s asset quality. It is a critical statistic used by lenders and financial institutions to analyze prospective losses and calculate provisions for bad loans or non-performing assets.
Significance of estimated recovery value in Banking:
ERV assists banks in estimating the possible losses from non-performing loans (NPLs) or defaulted assets. Banks are required to set aside a percentage of their income to cover potential loan losses. ERV assists in determining the current market value of the collateral, taking into account potential costs and market conditions, in order to determine how much the bank may realistically recover.
- ERV in banking is also Expected Rate of Volatility.