1.1 Introduction
Interest is an important component of contracts processed by your bank.
You should define the attributes for interest components by way of defining Interest Rules. These Interest Rules should, in turn, be linked to a product, so that the attributes of the Interest Rule is applied on all contracts involving the product. However, while capturing the details of a contract, you can modify some of the attributes defined for a rule. Further, for a contract, you can also indicate that the application of a specific Interest component should be waived.
This topic discusses the processing of interest on contracts. This include defining Interest Rules, linking them to a product, and applying them on a contract.
Example
You could link two interest rules to a product, one with 20% fixed interest and another with floating interest. These two interest rules are processed as two different interest components. The expense and accrual accounts can be different for these components. The two interest components are reported as different components in all reports and also in the customer correspondence relating to the contract.
Processing Interest
- Before a product module becomes operational, you need to maintain certain basic information on interest, which is later linked to a product. To create this information, you have to define floating rate codes and interest rules.
- You create interest rules for interest with attributes suitable for the product where these rules are applied. You can give each interest rule a specific Rule ID.
- When you define a product, you can choose the required interest rules that are applicable for contracts in the product and link these rules to the product. The product inherits the rule ID’s that are linked in this manner.
- When you input a contract, the interest details defined for the product in which the contract has been entered can be applied automatically on the contract. In other words, the interest rule is defaulted from the product under which the contract is processed. However, if required, you can change some of the attributes for interest, for a specific contract.