Defining Interest Details

From the Homepage, navigate to Bilateral Loans Product Definition screen (OLDPRMNT).

From the Bilateral Loans Product Definition screen, click on Interest.

The Interest Class Maintenance screen is displayed.

Note:

The fields which are marked in asterisk red are mandatory fields.

Figure 1-4 Interest Class Maintenance

Description of "Figure 1-4 Interest Class Maintenance"

You should necessarily use an interest class that you have created, to indicate the interest components applicable to the product. An interest class is a specific type of interest component that you can build with certain attributes.

Associating an interest class with a product
1. Select the appropriate Interest class from the list of classes, defined specifically for the Loans module of Oracle Lending.
2. To associate an interest class with a loan product, click Default From Class in the Interest Class Maintenance sub-screen.
The attributes defined for the interest class defaults to the product. You have the option to modify the attributes defined for the class, to suit the requirement of the product you are creating.

Associating several interest classes with a product

You can associate several interest classes with a product.

To add to the list of classes associated with the product, click Add row button.
Click Default From Class and select a class from the option list that is displayed.

To navigate between the classes associated with a product, you can use the arrow icons that are provided.

To disassociate a class from the product, navigate to the class using the arrow icons described above and click Delete row button.

For an interest class, you can define the following:

Table 1-4 Interest Details

Field	Description
Disassociating an Interest class from a product	The interest classes defined for a product is automatically applied to all contracts involving the product. If, for some reason, you want to stop applying a particular interest class to new contracts that are initiated (involving the product), you can do so by selecting the Stop Association check box. In effect, stopping the application of an interest class component for a product is equivalent to deleting the class from the product. By specifying that the application of a class should be stopped, you have the advantage of using the definition made for the class again. To do this, you have to deselect Stop Association check box . Contracts that are subsequently initiated picks up the class.
Main interest component	You can define any number of interest classes for a product. If you have defined more than one interest class, you can specify one of them as the main interest component. This interest component that is used for capitalization or amortization purposes if the repayment schedules are defined. The details of this main component is shown in the Loans and Commitment - Contract Input screen (OLDTRONL) and you can change them there without having to invoke the ICCF Details sub-screen. Components other than the main component have to be processed through the ICCF Details screen.
Retain main component properties	You can specify to retain the properties of main component for a particular component. The details of main component including gets applied to the selected component. And any changes made to the attributes of main component are reflected to this particular component also. When you select this option, you cannot enter the interest definition details either at product or contract level other than selecting this component for discount. You have to define an interest class first with the Amount Category as Expected and the same component can be linked at the product with Retain Main Comp Prop selected. As per this component, interest is computed on Expected Balance which is later be used for IRR computation. Note: Rate revision schedule definition can not be done for such components.
Event	Specify the association event in Event field. The event, at which you like to associate an interest component to a contract, is referred to as the association event. At this event, no accounting entry (for the interest component) is passed.
Basis amount tag	The basis on which interest is calculated is referred to as the basis amount. In Basis Amount Tag field, you have to specify the tag associated with the basis amount. Interest is calculated on the amount represented by this tag.
Amount category	Indicate the category of the component on which the interest has to be applied. The available options are: Expected Overdue Outstanding Overdue OS Sch-Overdue If the Basis Amount Category is Normal, the balance on which interest has to be applied is the Expected Balance (assuming that all the scheduled repayments, defined for the contract, are made on time). An example of this category is the application of interest on the principal of a loan. If the Basis Amount Category is Overdue, the balance on which interest has to be applied is the amount that is outstanding, based on the repayment schedule defined for the contract. An example of this category is the application of penalty interest, on the principal or interest, when a repayment has not been made as per the schedule. Select the applicable category using the drop-down list. The system defaults to Normal. An example of this category is the application of interest on the principal of a loan. Example Let us consider a loan of USD 1000, the contract spanning 10 months. The number of schedules by which the principal has to be paid back is 10 installments, each schedule amounting to USD 100. The details are as follows: Contract start date - 1 March 1997 Contract end date - 31 December 1997 Schedule dates - End of every month Schedule frequency - Monthly Schedule amount - USD 100 plus interest applicable The schedule details are given below: Table 1-5 When you specify the Basis Category as Expected, the interest is applied on the Expected Balance.
Interest accrual	For a product, you should specify whether accruals have to be carried out for the accruable components. If yes, the frequency of accruals (daily, monthly, quarterly, half-yearly or annually) should be specified for each product (through the Loans and Commitment Product Definition Preferences screen). The accruals are carried out at the specified frequency by the Automatic Contract Update function. In addition, accruals are done whenever an event (like a rate change with a Value Date, a payment, and so on.) is triggered as of a date beyond the date on which the last accruals were carried out.
Penalty start day	Oracle Lending calculates the penalty in case the loan payment is not made on the schedule date. However, if the payment date falls on a holiday, the penalty can be calculated depending on the start date that you specify in this screen. If you have specified that penalty start date basis as the Due Date, the penalty is calculated from the due date of payment even if it falls on a holiday. If you have specified that the penalty start basis be Next Working Day, the penalty is calculated from the working day following the holiday. Thus, the system l waives the penalty for the holiday (s). The Penalty Start Date Basis specifications you maintain for the interest class is defaulted here and the system does not allow you to change these options. Example Assume a loan principal payment schedule falls on 11^th October 2003, which is maintained as a holiday in Oracle Lending. In addition, there is a deficit of funds in the customer’s account for making the payment. If you have selected the due date option and payment delay days is 5 days, then the Pay By Date is 16 October 2003. The system calculates the penalty from 16 October 2003 not from due date (11^th October 2003). If you have selected the next working day option, the system calculates the penalty from 18^th October 2003 and waives the penalty for 16^th and 17^th October (assuming 16 and 17 are holidays). For information on Alternative Risk-Free Rates, refer to Interest Class Maintenance in this User Manual.

Table 1-5 Schedule Details

Date	Principal Schedule Amount	Expected Balance
31 March 1997	100	900
30 April 1997	100	800
31 May 1997	100	700
30 June 1997	100	600
31 July 1997	100	500
31 August 1997	100	400
30 September 1997	100	300
31 October 1997	100	200
30 November 1997	100	100
31 December 1997	100	None

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