On the balance type of accounts maintained in your bank, you would want to apply interest and charges. Savings accounts, current accounts, nostro accounts, etc., are examples of balance type accounts. Using the Interest and Charges (IC) sub-system of Oracle FLEXCUBE, you can calculate, and apply, interest and charges on these accounts.
Setting up the Interest and Charges sub-system is a one-time activity. Once set up, Oracle FLEXCUBE automatically computes and applies interest and charges on all balance type accounts in your bank.
In Oracle FLEXCUBE, interest is calculated for all accounts using the interest rules that you define. You can define the interest rules to suit the peculiar requirements of your bank.
This chapter contains the following sections:
A ‘Rule’ identifies the method in which interest has to be calculated. For example, to calculate interest for an account, you would require the following data:
When you define a rule, you define exactly how each of these components (the principal, the period, and the rate) is to be picked up from an account for calculating interest. Then, using the logic PNR/100 (or any other, for that matter), you can calculate interest for the account.
The components required to build an interest rule (the principal, period, and rate) are broadly referred to as ‘data elements’. Data elements are of two types:
The balance in the account for which the interest has to be calculated depends on the activities that take place in the customer account over a period of time. This information is constantly updated in the system and is readily available for computation of interest or charges. Data elements of this sort are called System Data Elements.
Data elements such as the rate at which you would like to apply interest, the tier structure based on which you would apply an interest rate, etc., are called User Data Elements (UDEs). UDEs fall into three categories:
You can specify different values for a user data element. For example, you can apply different interest rates on the basis of the debit balance, as follows:
Using the System Data Elements and the User Data Elements that you define, you can create formulae to compute interest. In other words, formulae connect SDEs to the UDEs to give a result: the interest that applies.
To use a metaphor, SDEs and UDEs are the pillars on which an arch called formula rests. Many arches combine to form a dome called Rule. The things that you choose to put under a dome correspond to the account classes (or accounts themselves) on which the rule applies.
To build an interest rule, you first need to define the System Data Elements that you would use in the Interest Rule. For example, if you would like to apply interest on the basis of the Monthly Minimum Credit Balance, you should define it as an SDE in the System Data Element Maintenance screen. When you apply the interest rule with ‘Monthly Minimum Credit Balance’ defined as the SDE on an account class, interest will be calculated using the monthly minimum credit balance in the accounts belonging to the account class.
Once you have defined an interest rule, you have to define an interest product.
Your bank will pay and receive different types of interest and charges. For example, you would pay credit interest on credit balances in savings types of accounts. Similarly, on current accounts you would levy a debit interest on debit balances, and so on. Credit interest and debit interest are examples of the products that you can define.
An interest rule is merely built with the logic to calculate interest. You still have, however, to specify the accounts on which the logic has to be applied, the types of GLs (expense, income, etc.), and the GLs themselves to which you would like to post the accounting entries. You can define such details for an interest product. When you link an interest rule to an interest product, and apply the product on an account, interest will be calculated for the account using the interest rule, and the accounting entries would be automatically posted to the GLs that you specify for the interest product.
You can apply an interest product on an account(s) in two ways:
Often, you may calculate interest for several account classes using the same interest calculation method. In such a case, you can apply the same product to all the account classes. You can specify the account class (es) when creating the interest product. However, since the interest rate or tier structure based on which you want to calculate interest may be unique to an account class, you can specify different values for each account class on which you apply the product.
The implications of applying the same product on several account classes are:
The definition of a general condition would be the most commonly used facility at your bank.
When you define interest attributes for an account itself, rather than for the account class to which it belongs, it is referred to as a Special Condition.
When maintaining an account in the Customer Account Maintenance screen, you can opt to define ‘special conditions’ for it. If you opt to define special conditions for an account the ‘general conditions’ defined for the Account Class, to which the account belongs, will NOT apply to this account.
Typically, you would want to maintain a special interest condition for a special customer.
The interest rates for a currency can either be fixed or floating. If you want to apply a fixed interest rate for an account class, you can define so for the product. The prevailing market rate for a currency can be maintained in the Rates Maintenance screen. The rates maintained here can be updated every time there is a change. You can apply prevailing rates on an account class by specifying the rate codes (that you assign in the Rates Maintenance screen) in the UDE Values Maintenance screen.
If you have a customer with many accounts, you can combine them for the purpose of application of interest. For example, if you have a corporate customer who has ten current accounts, you can combine them for the calculation and application of interest.
When defining interest details for a customer account (in the Customer Account Maintenance screen) you can maintain the information necessary for the combination of accounts. Combination can be of two types − for calculation (this involves combined calculation and booking) or for booking only.
To calculate the charges that you would like to levy on an account, you have to specify the basis on which you would like to apply charges. For example, you may want to apply charges on the basis of the debit turnover in an account. When you define a Charge product, you have to specify the Charge basis. When you apply the charge product on an account or an account class, charges for the account will be calculated on this basis. The accounting entries would automatically be posted to the GLs that you specify for the charge product.
You can calculate charges for an account on the following bases:
For any charge basis, you can define the number of items that should not be charged. Thus, you can apply a charge only if the number of account statements given to the customer exceeds a certain number, and so on.
Information about the application of interest or charges on accounts can be retrieved in many ways. You can retrieve data in two ways:
When you seek information in the form of a display, on the basis of certain parameters, you perform a ‘query’. Typically, you would ‘query’ (the system) to provide your customer with immediate information, such as the interest accrued on an account, the interest rates applicable, etc.
A report, on the other hand, is information retrieved mostly in a printed format. However, you can direct a report to one of the following destinations:
The reports that you have spooled can be printed, or viewed, through the ‘Reports Browser’ screen.