Floor and Ceiling for Base Rate Only

Propogating Floor and Ceiling

For an effective date, currency and DD product/component combination:

Propagation in EOD batch is done only when Floor and Ceiling maintenance exists with effective date as application date. Online validation/propagation is done based on the latest floor and ceiling maintenance, that is the latest maintenance is taken if there is no maintenance for the current date. System always considers the latest maintenance.

Batch Propagation Process

System picks up all the tranches for which Floor/Ceiling restricted to base rate is selected. For each tranche, propagation is done for all the drawdowns provided.

Each drawdown should pass all the below validations:

Drawdown should be active.
Rate fixing required should be Yes.
Drawdown rate type should be fixed.
Drawdown base rate is not within the defined Floor and ceiling.

Floor and Ceiling propagation does not happen in batch, if the propagation has already happened online for the current day floor/ceiling maintenance, and also if floor/ceiling maintenance has not been changed after the online propagation

Online Propagation Process

The following online activities initiate the floor and ceiling propagation:

Saving a new Drawdown.
Saving Interest Rate Amendment from Interest Rate Fixing screen.
Creating new drawdown during online Rollover/Re-price processing.

System checks whether the check box Floor/Ceiling restricted to base rate is selected or not at the tranche level. If yes, the underlying drawdown is validated as below:

Drawdown should be Active.
Rate fixing required should be Yes.
Drawdown rate type should be fixed.
Drawdown base rate is not within the defined Floor and ceiling

Upon successful validation, the difference between the drawdown base rate and floor or ceiling rate is propagated to underlying Drawdown’s margin adjustment component and its margin rate are adjusted accordingly. Propagation triggers a VAMB/VAMI for the change of the rate for this margin for the drawdown.

Note:

There is not any change to the Drawdown base rate during propagation and only Margin rate is adjusted accordingly on the adjustment component.
VAMB/VAMI is not registered during propagation if the margin rate of the adjustment component is already zero. In this case, only RTAM is registered as the propagation results in having Adjustment Rate.
VAMB/VAMI registered during propagation cannot be deleted, authorized or reversed from the Value Dated Amendment screen.
For the rollover and split re-price instructions which are pending to be processed but already captured, system does not update the margin rate as part of the propagation. However, the validations and necessary propagation for floor or ceiling rate (In case if base rate is lesser than floor value or margin rate is greater than the Ceiling value) happens while initiating the child contracts. This is applicable for both Online and Batch renewals.
Margin rate propagation to uninitiated Drawdowns can not be done and the same happens during drawdown initiation. The initiation of the uninitiated drawdown on the drawdown value date is done as given below:
If the base rate of the drawdown is not within the base rate floor/ceiling defined at the tranche level for the drawdown interest component, then the propagation is done based on the latest base rate from Floor/Ceiling maintenance.
It is not mandatory that the maintenance should exist for the application date.For batch/online, for the period in which the rate fixing is not done propagation is not done though a valid floor/ceiling maintenance exists.
The system does not do any validation/propagation during future value dated interest rate amendment (IRAM).
In Oracle Banking Corporate Lending, adjustment rate and adjusted rate are tracked individually, for each propagation.
All-in-rate is the sum of base rate, margin and adjustment rate
After VAMB/VAMI event, if there is any change resulting in having an Adjustment Rate, irrespective of positive or negative adjustment rate, a RTAM event is registered.
Every floor and ceiling propagation is zero based and there is not any dependency between current and previous propagations on a Drawdown.

Example for usage of Adjustment Rate with Application Date as 1^st August, 2011

Consider that the following maintenance is done in the system:

Base Rate Floor – 4
Base Rate Ceiling – 6
Effective Date – 1st August, 2011
Margin Adj Components – DD-MARGN

The following table summarizes the usage of adjustment rate:

Table 4-32 Example for usage of adjustment rate

-	-	Base Rate	Margin	All-In-Rate	Adjustment Rate
Existing Contract	Drawdown1	11	3.5	14.5
F/C Propagation	Drawdown1	11	0	9.5	-1.5

Online Validations and Propagation of Floor and Ceiling

For transactions in which the drawdown base rate is not within floor and ceiling and if the new option Floor/Ceiling restricted to base rate is Yes for the tranche, system throws the following override message:

The user-fixed base rate is not within Floor or Ceiling and it will be propagated / updated during the save of the transaction.

Upon confirmation, propagation is initiated online during save of each of the transactions.

Note:

You cannot save the transaction if the over-ride is cancelled.
Floor and ceiling propagation are done only by adjusting the margin component maintained in the floor/ceiling maintenance and there is not any change to the drawdown base rate.
Online propagation is done based on the latest Floor and ceiling maintenance though there is no maintenance done for the current date.
If there is any backdated transaction resulting in online propagation, the latest Floor and ceiling rate are used for the propagation but the propagation is effective from the Floor/ ceiling effective date and not from the value date of the transaction.

Override during Online Transactions

If base rate is lesser than the Floor defined at the Tranche, system displays the following over-ride message:

Rate is lesser than the Floor defined at Tranche. Do you want to add the difference with the Margin Adjustment component (which is maintained at the tranche level)?

On accepting the override, during save, the difference would be added with the margin adjustment component defined at the tranche. On cancelling the override, you cannot save the transaction without giving a rate greater than or equal to the Floor value.

If base rate is greater than the Ceiling defined at the Tranche, system displays the following over-ride message:

Rate is greater than the Ceiling defined at Tranche. Do you want to negate the difference of the rate and ceiling value with Margin Adjustment component?

On accepting the override, during save, the difference would be negated with the margin adjustment component value defined at the tranche. On cancelling the override, you cannot save the transaction without giving a rate lesser than or equal to the Ceiling value.

Validating Rollover and Reprice (Renewal) Instructions

While saving renewal instructions, system provides an over-ride indicating that the base rate is not within Floor / ceiling limit. If you cancel the override, system saves the renewal instruction though the maintained fixed base rate is not within the limit of Floor/Ceiling. If you click Ok, base rate is systematically changed based on Floor and ceiling maintenance and system does not register any event for such systematic rate changes.

For Split Re-price, Split / Consolidated / Consol + Split Rollover Instructions which are yet to be processed, system does not update the margin rate in the existing instructions as part of the batch propagation. Propagation is always be based on the latest Floor and ceiling maintenance as of the renewal processing date.