11.8.4 Change Status of a Loan

Apart from the Active status that is allotted automatically to a loan on its initiation, a loan on which one or more payments have not been made on the schedule date can pass through more than one status. You can define the attributes for each status code. These are:

• The number of days in which a loan should stay in a specific status.
• The customer classification for which a loan should stay in a particular status.
• Whether the GL under which it is reported should be changed when there is a status change.
• The new GL under which it should be reported.
• For a component, you can specify the number of days after a missed interim schedule when it has to be moved to the status being defined. Similarly, you can specify the number of days after a Maturity schedule is missed, when the same component has to be moved to the status being defined. You can also specify that all future schedules should be moved to a different set of GLs.
• Usually, more than one status is defined for a product. In this context, you should indicate the sequence in which a loan should move to the status you are defining. You should also define whether the status should be considered as adverse status (to be enabled for delinquency tracking) or not.
• You can indicate that accruals (on all accruable components) should be stopped on a loan when it moves to the status being defined. By doing so, you can ensure that your Receivable accounts for interest and other components are not updated for a loan on which your customer has defaulted on a repayment.
• You can indicate that the outstanding accruals (where interest has been accrued but not paid) on the loan should be reversed when it moves to the status that you are defining. If you so specify, the accruals on the loan, that are yet to be realized, are reversed when the status change is carried out. You have to first stop accruals before indicating that they be reversed.
• You can indicate that the past and future accruals (with regard to a status) should be transferred / redirected to Memo GLs. In case you have indicated that real accruals should be reversed, the catch-up for the same are done in the Memo GLs. All future accruals will take place in the Memo GLs. As and when a repayment is done, the corresponding accrual amount will be reversed in the MEMO GLs and booked in the real GLs. You have to first stop accruals before indicating that they be reversed. However, you may or may not maintain reverse accruals depending on whether you want the past accruals to be transferred to the MEMO GLs or not.

The statuses are user-defined. That is, you can define the various statuses for a product and a loan according to your needs.

For more information about maintaining status derivation rules, refer to Product Definition User Manual.

Example

You could define the following status for the product, Short Term Loans with Individuals:

• Normal - This is when repayments on a loan are done as per schedule.
• Past Due Obligation (PDO) - This is when repayments on a loan have been stopped but the accruals on the accruable components are still being done (There is still a chance of repayment of the loan).
• Non-accrual basis (NAB) - When the loan acquires this status all accruals for the loan are stopped (The chances of repayment diminish further).
• Write-off (WO) - This is when the loan is written off and all accrual entries are reversed.

Status	Sequence
PDO	1
NAB	2
WO	3

You want a loan under this product to move from status to status in the order in which they are mentioned here. For such a condition, you can indicate the number of days after which each component should move to the status being defined (these can differ for a maturity schedule and an interim schedule).

According to the number of days of default defined for each component, a loan is first moved to PDO from Active status, then to NAB and lastly to WO status.

You can classify a status as adverse thereby indicating whether a contract is itself delinquent or marked for adverse status by virtue of other contract(s) of the same customer having gone into default. You can also indicate the change of GL, if any, when a component comes to a particular status, and the messages to be generated at each status change.