12.2 Defining a Commitment Product

You can define a product for commitments just as you can define one for loans. When you define a product, and enter into commitments involving the product, the commitments inherit the attributes of the product. However, you can change most of these attributes at the time of initiating a commitment.

A product is created as a general framework. Though a commitment generally inherits the attributes of the product it involves, it also have certain details specific to it, such as:

• The counterparty details
• The amount
• The contract reference number
• The user reference number

In the product definition screen, you have to specify the Product Type as Commitment. You should specify the other details, such as the product code, a description, a slogan, the product group, the start and end dates and the remarks, just as you would for a loans product.

You can invoke the Product Definition screen by typing OLDPRMNT in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.

You can specify your preferences (or options) through the Product Preferences screen:

• Specify the authorization re-key fields.
• Specify the minimum, maximum and standard tenor of the commitment product.
• Specify the frequency of accruals for the fee.
• Specify the mode of liquidation for the principal and the fee schedules.
• Specify the schedule type.
• Specify the exchange rate variance.

Through the ICCF screens, specify the fee applicable to the commitment. The fee can be:

• A flat amount
• A rate

For a product, you should define schedules for the fees that you levy. You have to:

• Define the reference date - the Calendar date (date of the first fee schedule) or the Value Date (the date of initiation of the commitment),
• The frequency - monthly, half yearly
• The unit, month and date
• The number of schedules

Similarly, for the Principal you should define a schedule where the entire principal or the unused portion is liquidated at maturity.

Through the Product Status Control screen, you can specify the following for the fee component:

• Whether status change has to be automatic.
• Whether accruals are to be stopped, when the commitment is in a particular status.
• The accounting role and accounting head of the new GL to which accounting entries would be posted when the status of the commitment changes.
• The advices, if any, to be generated for each status.
• The number of days to achieve the status being defined for interim schedules.
• The number of days to achieve the status being defined for the maturity schedule

For the commitment product, you should define the following:

• The accounting role and accounting head.
• The accounting entries
• The advices to be generated when a particular event takes place -- for example, you can specify that a repayment advice has to be generated for the fee.
• The branches which can use this product.
• The currencies which can be allowed for the product.
• The customer categories and the customers who can use the product.