4.3.8 Maintain Schedule Adjustments on Interest Rate Revision

You can adjust either a bullet or an installment and make adjustments for any rate type contracts. To do this, you need to maintain the following:

• You must select an appropriate value for the On Rate Revision field Loans and Commitment Product Maintenance). The options available are, Change Installment and Change Bullet Schedule. This field is enabled only for Amortized products.
• The On Rate Revision field in the Contract Maintenance screen is defaulted from the product level; however, you can modify it while creating a contract. Once the contract is saved and authorized, this field cannot be modified.

System performs the following validations/processing:

• In Oracle Lending, Interest Rate changes can happen either through Rate Revision (REVN) or Value Dated Amendment (VAMI) events. For floating rate contracts, the rate change is possible through REVN and VAMI events. For fixed rate contracts, rate change can be done only through VAMI event.
• Change Installment:
  • The EMI re-computation function is stored upfront the prevailing EMI and check the preference is Change Installment or Change Bullet Schedule.
  • For Change Installment preference, the current maturity date is kept constant and the EMI is re-generated.
• Change Bullet Schedule:
  • The EMI re-computation function stores upfront the prevailing EMI and check if the preference is Change Installment or Change Bullet Schedule.
  • If the preference maintained is Change Bullet schedule, then in the event of REVN or VAMI an increase or decrease in the rate increases or decreases the bullet schedule amount without affecting the EMI / Tenor. As a result, the EMI of the bullet schedule is below or above the other schedules.
  • The main interest component amount of each installment is re-computed based on the principal balance and the new rate.
  • The prevailing EMI is kept constant. The EMI present in the current schedule of the transaction – System does not consider the EMIs of the previous schedules.
  • The iteration of reducing the Principal balance with the above Principal component of EMI continues until the bullet schedule is reached.
  • The last EMI have the remaining Principal amount and the interest as the EMI.

Example

The below example explains change bullet schedule due to interest change option. Assume that you have disbursed a loan with the following details:

• Principal – 10,000 USD
• Interest Rate – 2.25%
• Contract Start Date – 01-Dec-04, First due date is 31-Dec-04
• Contract Maturity Date – 30-Nov-05
• Term / Tenor {In Years} – 1.00
• Basis of Tenor – Actual/360
• Tenor Frequency – 12
• System generated EMI – 843.65 USD

Based on the reducing balance method, the interest, principal and the EMI is as follows:

Table 4-19 Change bullet schedule

Schedule Sl. No	Date	Interest	Principal	Principal o/s	EMI
-	1-Dec-04	-	-	$10,000.00	-
1	31-Dec-04	$19.38	$824.28	$9,175.73	$843.65
2	31-Jan-05	$17.78	$825.87	$8,349.85	$843.65
3	28-Feb-05	$14.61	$829.04	$7,520.82	$843.65
4	31-Mar-05	$14.57	$829.08	$6,691.74	$843.65
5	30-Apr-05	$12.55	$831.10	$5,860.63	$843.65
6	31-May-05	$11.35	$832.30	$5,028.34	$843.65
7	30-Jun-05	$9.43	$834.22	$4,194.12	$843.65
8	31-Jul-05	$8.13	$835.52	$4,194.12	$843.65
9	31-Aug-05	$6.51	$837.14	$2,521.45	$843.65
10	30-Sep-05	$4.73	$838.92	$1,682.53	$843.65
11	31-Oct-05	$3.26	$840.39	$842.14	$843.65
12	30-Nov-05	$1.53	$842.13	$0	$843.66

Assume interest is changed to 4% on 18th Mar, then schedules are given below:

Table 4-20 Change bullet schedule

Schedule Sl. No	Date	Interest	Principal	Principal o/s	EMI
-	1-Dec-04	-	-	$10,000.00	-
1	31-Dec-04	$19.38	$824.28	$9,175.73	$843.65
2	31-Jan-05	$17.78	$825.87	$8,349.85	$843.65
3	28-Feb-05	$14.61	$829.04	$7,520.82	$843.65
4	31-Mar-05	$19.69	$823.96	$6,696.86	$843.65
5	30-Apr-05	$22.32	$821.33	$5,875.53	$843.65
6	31-May-05	$20.24	$823.41	$5,052.12	$843.65
7	30-Jun-05	$16.84	$826.81	$4,225.31	$843.65
8	31-Jul-05	$14.55	$829.10	$3,396.21	$843.65
9	31-Aug-05	$11.70	$831.95	$2,564.26	$843.65
10	30-Sep-05	$8.55	$835.10	$1,729.16	$843.65
11	31-Oct-05	$5.96	$837.69	$891.46	$843.65
12	30-Nov-05	$2.87	$891.46	$0	$894.33