2.4 Calculating Loan Interest Accrual on Principal Outstanding

When you select amount category as Outstanding for calculating the interest the interest is calculated on the balance of the total principal outstanding amount. Loan and Commitment- Contract Input screen accepts the schedules for Interest which is defined for this amount category.

The accrual logic remains the same and to arrive at the daily average amount the total interest is divided by the number of days. However, the computation of interest schedules change based on the above setup.

Example

A contract is booked with the following details.

• Principal Amount - 12000000
• Interest Rate - 10%
• Value Date - 28-Sep-05
• Maturity Date - 28-May-06

The amount category is maintained as Expected and the schedules of Principal and Interest are defined as monthly. The schedules get defined in the following manner.

Principal	Interest Rate	Start Date	End Date	No of Days	Principal Schedule	Interest Amount	Daily Avg Amount
12000000	10%	28-Sep-05	28-Oct-05	30	2000000	100000	3333.33333
10000000	10%	28-Oct-05	28-Nov-05	31	2000000	86111.1111	2777.77778
8000000	10%	28-Nov-05	28-Dec-05	30	2000000	66666.6667	2222.22222
6000000	10%	28-Dec-05	28-Jan-06	31	2000000	51666.6667	1666.66667
4000000	10%	28-Jan-06	28-Feb-06	31	2000000	34444.4444	1111.11111
2000000	10%	28-Feb-06	28-May-06	89	2000000	49444.4444	555.555556

However, the schedules are defined in the following manner for the contract with same details as above, if the amount category is maintained as Outstanding.

Principal	Interest Rate	Start Date	End Date	No of Days	Principal Schedule	Interest Amount	Daily Avg Amount
12000000	10%	28-Sep-05	28-Oct-05	30	2000000	100000	3333.33333
12000000	10%	28-Oct-05	28-Nov-05	31	2000000	103333.333	3333.33333
12000000	10%	28-Nov-05	28-Dec-05	30	2000000	100000	3333.33333
12000000	10%	28-Dec-05	28-Jan-06	31	2000000	103333.333	3333.33333
12000000	10%	28-Jan-06	28-Feb-06	31	2000000	103333.333	3333.33333
12000000	10%	28-Feb-06	28-May-06	89	2000000	296666.667	3333.33333

Here even though the schedules are defined for monthly payment schedules of Principal, the schedules are computed on the Loan Principal Outstanding since the Principal amount is not expected to be paid at the time of Loan Initiation.

Now assuming that the payment of principal which was due on 28-Oct-2005 was paid along with the interest due on the scheduled due date, then the schedules are redefined as under.

Principal	Interest Rate	Start Date	End Date	No of Days	Principal Schedule	Interest Amount	Daily Avg Amount
12000000	10%	28-Sep-05	28-Oct-05	30	2000000	100000	3333.33333
10000000	10%	28-Oct-05	28-Nov-05	31	2000000	86111.1111	2777.77778
10000000	10%	28-Nov-05	28-Dec-05	30	2000000	83333.3333	2777.77778
10000000	10%	28-Dec-05	28-Jan-06	31	2000000	86111.1111	2777.77778
10000000	10%	28-Jan-06	28-Feb-06	31	2000000	86111.1111	2777.77778
10000000	10%	28-Feb-06	28-May-06	89	2000000	247222.222	2777.77778

The accrual amount on the EOD of 28-Oct-2005 with the next working day as 29-Oct-2005 is 2777.78

Note:

Even a prepayment of Principal changes the accrual amount.

Example

If a contract has been booked with the following details,

• Principal Amount - 12000000
• Interest Rate - 10%
• Value Date - 28-Sep-05
• Maturity Date - 28-May-06

Assuming that all the repayment schedules except the last two schedules have been paid, the schedules are the following:

Principal	Interest Rate	Start Date	End Date	No of Days	Principal Schedule	Interest Amount	Daily Avg Amount
12000000	10%	28-Sep-05	28-Oct-05	30	2000000	100000	3333.33333
10000000	10%	28-Oct-05	28-Nov-05	31	2000000	86111.1111	2777.77778
8000000	10%	28-Nov-05	28-Dec-05	30	2000000	66666.6667	2222.22222
6000000	10%	28-Dec-05	28-Jan-06	31	2000000	51666.6667	1666.66667
4000000	10%	28-Jan-06	28-Feb-06	31	2000000	34444.4444	1111.11111
4000000	10%	28-Feb-06	28-May-06	89	2000000	98888.8889	1111.11111

The highlighted schedules are unpaid. On the EOD of 28-May-2006, the Main Interest Component Accrual stops and the Floating Interest component starts computing the interest based on the maintenance, with the basis amount as 4000000.