1.1 Define Interest Class

This topic describes the systematic instructions to define interest class.

You need to define the attributes of an interest class, in the Treasury Interest Class Definition screen, invoked from the Application Browser.

1. On the Homepage, enter CFDTRINC in the text field and then click the next arrow.
   The Treasury Interest Class Definition screen is displayed.

   Figure 1-1 Treasury Interest Class Definition

   
   Description of "Figure 1-1 Treasury Interest Class Definition"
2. On the Treasury Interest Class Definition screen, specify the fields.
   For field details and description, refer to the below table.

   Table 1-1 Treasury Interest Class Definition - Field Description

   Field	Description
   Class Code	Specify a unique code to identify the class.
   Class Description	Specify a brief description for the class.
   Rule Code	Specify the rule that should be linked to the class. The adjoining option list displays all valid rules maintained in the system. You can choose the appropriate one.
   Rule Description	The system displays the description based on the rule chosen.
   Event	Specify the event at which collection of the interest should be triggered, The adjoining option list displays all events available in the system for the module specified. You can choose the appropriate one.
   Module	Specify the module to which the class should be applicable. The adjoining option list displays all module codes available in the system. You can choose the appropriate one.
   Amount Type	If the interest rate type is Fixed or Floating, specify the basis amount on which the interest rate has to be applied. For example, for the MM module, it could be the MM Contract Amount and so on.
   Settlement Currency	The Settlement Currency is the currency in which the interest amount will be calculated. The interest amount applicable for a contract will be calculated in this currency. The appropriate conversion rate (defined for the product as the applicable Rate Type) is applied to carry out a conversion if the repayment account is in a different currency.
   Category	If the interest rate type is Fixed or Floating, specify the type of balance that has to be considered for interest application. It could be any one of the following: Expected Overdue Normal Outstanding
   Accruals	Check this box to indicate that accruals have to be carried out for the accruable components.
   Bulk Amount	When a contract gets rolled over, you may wish to split it into two contracts - one for the interest amount (I) and the other for the principal amount (P). If you want the floating rate pickup for both the new contracts (tenor/amount) to be based on P+I of the original contract, check this box.
   Allow Amendment	If you would like to allow amendment of the interest amount calculated by the system as per the charge rule, check this box.
   Stop Application	Check this box to indicate that collection should stop for the interest component.
   Grace Period	Specify the number of grace days, beyond the main interest due date, after which that interest component becomes applicable.
   Prepayment Method	Select the method for actual prepayment penalty computation from the adjoining drop-down list. The options available are: Oracle Banking Treasury Management - This option is used where pre-payment has to be applied on the deposit contract for contract elapsed days. Custom - If the Prepayment Method is Custom, then the prepayment penalty in this case will be the minimum of prepayment penalty and Gross interest on the premature withdrawal amount. The system computes the interest amount to be liquidated due to prepayment of principal. You will not be allowed to specify the interest amount during the Payment input in such a case. Note: Here, the system does not include the Acquired interest for processing. Also, if you have chosen the prepayment method as Custom, you cannot prepay or manually liquidate either the interest or the principal component. This option is used where pre-payment has to be applied on the deposit contract for contract remaining days.
   Main Component	Check this box to indicate that the component should be treated as the main interest component.
   Negative Interest Allowed	Check this box to allow negative interest for interest class. You can check this box only if interest class is maintained for Money Market, Corporate Deposit or Bills and Collections module and ‘Main Component’ flag is checked. If negative interest is allowed for an interest class, system will generate a negative interest component on saving the interest class. Negative Interest Class name is derived as Main Interest Class Code_N. If the length of main interest class code is more than 8, then the system truncates the interest class code to first eight characters and adds ‘_N”. The following fields under ‘Limits’ block allow negative input value, if you have checked the ‘Negative Interest Allowed’ checkbox for the class code: Minimum Rate Maximum Rate Default Rate Minimum Spread Maximum Spread Default Spread
   Negative Class Code	The system displays the negative class code.
   Link Contract as Rate code	Check this box to indicate that a fixed rate contract may be linked to the floating rate component, instead of a rate code.
   Propagation Required	Check this option to indicate that the charge collected from the borrower must be passed on to the participants of the contract.
   Consider as Discount	Check this box to indicate that the fee component should be considered as part of discount accrual.
   Alternative Risk Free Rate	Identifies if the interest class is enabled for RFR.
   Alternative Rate Revision Preferences	Select any one of the RFR calculation method check box from the below options: Lookback Payment Delay Lockout Interest Rollover Last Reset Last Recent Plain Index Value Weighted Average The user can also select the combination of the below calculation method check box: Lookback and Lockout Lookback and Payment Delay Lockout and Payment Delay Lookback, Lockout, and Payment Delay For more information on RFR calculation method for each type, refer to the RFR Calculation Method.
   Lookback	The user can select Lookback as RFR preference if the Rate Method is In-Arrears. The observation period for the interest rate calculation starts and ends a certain number of days prior to the Interest period. As a result, you can choose the interest payment to be calculated prior to the end of the interest period
   Look Back Days	This field will only be relevant if 'Rate Method' is 'In-Arrears' or bearing and RFR method is Lookback.
   Lockout	The user can select Lockout as RFR preference if the Rate Method is In-Arrears. Lockout means that the RFR is frozen for a certain number of days prior to the end of an interest period (lockout period). During this time, the RFR of lockout period days is applied for the remaining days of the interest period. As a result, the averaged RFR can be calculated a couple of days before the end of the Interest period.
   Lockout Days	This field will only be relevant if 'Rate Method' is 'In-Arrears' or bearing and RFR method is Lockout.
   Payment Delay	The user can select Payment Delay as RFR preference if the Rate Method is In-Arrears. In this method, Interest payments are delayed by a certain number of days and are due a few days after the end of an interest period.
   Payment Delay Days	This field will only be relevant if 'Rate Method' is 'In-Arrears' or bearing and RFR method is Payment delay. Number of days by which the interest (or installment) payments are delayed by a certain number of days and are thus due a few days after the end of an interest period.
   Interest Rollover	Check this box to indicate that interest rollover is allowed. Interest Rollover method can be used as a combined method along with one each of In-arrears & In-advance methods. Payments are set in advance and any missed interest relative to in arrears is rolled over into the next payment period. This option combines a first payment (installment payment) known at the beginning of the interest period with an adjustment payment known at the end. The adjustment payment can be made a few days later or at the end of the next accrual period. Interest rollover with negative interest rate is allowed for In-arrear method.
   Plain	This field will only be relevant if Rate Method is In-Arrears or bearing and RFR method is Plain. System uses averaged RFR over current interest period, paid on first day of next interest period.
   Last Reset	This field will only be relevant if 'Rate Method' is 'In-Advance' and 'Rate Convention' is Last reset. In this option, interest payments are determined on the basis of the averaged RFR of the previous period.
   Last Recent	This field will only be relevant if 'Rate Method' is 'In-Advance' and 'Rate Convention' is Last recent. In this option, a single RFR or an averaged RFR for a short number of days, are applied for the entire interest period
   Computation Calendar	Select the Computation Calendar from the drop-down list, when RFR is selected for interest calculation. The available options are: Currency Financial Calendar
   Financial Center	This field is mandatory if the financial center is selected as a computation calendar. Select the code of the financial center from the displayed list of values
   Base Computation Method	It is either simple or compounded
   Spread\ Margin Computation Method	Spread\ Margin computation method can be maintained as either Simple or compounded.
   Spread Adjustment Method	Spread adjustment method is either as either Simple or compounded
   Rate Compounding	User can select the rate compounding to be applied for each calculation period. When enabled, system opts for rate compounding instead of amount compounding, the amount difference comes into effect only if any pre-payment is done. Note: For more information on RFR Index value calculation, refer to the attached RFR Rate Compounding calculation worksheet.
   Rate Compounding Method	Select the Rate Compounding Method from the drop-down list. The available options are: CCR NCCR This Rate Compounding method produces a rate for a period by applying the RFR compounding formula to the RFR rate and applying the compounded rate to the principal to calculate the interest due. Currently it’s applicable for MM & SR modules. Rate Compounding supports two methods: 1. Cumulative Compounded Rate (CCR) Calculates the compounded rate at the end of the interest period and it is applied to the whole period. It allows calculation of interest for the whole period using a single compounded rate. 2. Non-Cumulative Compounded Rate (NCCR) It is derived from Cumulative Compounded Rate i.e., Cumulative rate as of current day minus Cumulative rate as of prior Banking day. This generates a daily compounded rate which allows the calculation of a daily interest amount. Rate Compounding supports below RFR preferences: Arrear Method Lookback Lockout Payment Delay Plain
   Index Value	Select the Index Value check box to use the RFR index rate. The RFR Index measures the cumulative impact of compounding RFR on a unit of investment over time. Index Value supports below RFR preferences: Arrear Method Lookback Lockout Payment Delay Plain Advance Method Last Reset Last Recent For more information on RFR Index value calculation, refer to the attached RFR Index Value calculation worksheet.
   Observation Shift	Select the Observation Shift check box to apply observation Shift to RFR calculation. The observation shift mechanism provides the rate to be calculated and weighted by reference to the Observation Period rather than the relevant interest period. Observation Shift Currently supports below RFR Methods and combination. Lookback Lockout Lookback and Lockout combination Note: For more information, refer to the attached RFR Observation Shift calculation worksheet.
   RFR Rounding Unit	Specify the Rounding Units value to round daily index value to the nearest whole number and use it for interest calculation. It is applicable only when RFR index value is used.
   Rate Type	Indicate whether the interest is a Fixed Rate, a Floating Rate or a Special amount. If the Rate Type is a Floating Rate, you should also specify the Rate Code.
   Rate Code	Each Rate Code corresponds to a rate defined for a combination of Currency, Amount (if it is necessary) and an Effective Date. These details are maintained in the ‘Floating Rates Input’ screen. This rate will be applied to all contracts under products linked to the class. Standard overnight RFR rate codes maintained from the core screen can also me mapped.
   Code Usage	Specify the method in which the floating rates have to be applied. It could either be automatic application (meaning the rate has to be applied every time it changes), or periodic application (meaning the rate has to be applied at a regular frequency, defined for each contract involving the product linked to this class).
   Reset Tenor	Floating interest rates are defined for specific amount slabs and tenor combinations. If you are defining a floating interest component or a fixed type with rate code attached, you can indicate the reset tenor for which floating rates need to be picked up. The tenor that you specify for the component is defaulted to all contracts with which the floating interest component is associated.
   Borrow Lend Indicator	Indicate the nature of the floating rate that needs to be picked up for the interest component. The options available are: Borrow Lend Mid
   Rate Calculation Type	For floating type of interest components and fixed type with rate code attached, you can indicate the manner in which floating rates should be applied. The preference that you specify here is used when an interest component does not fit into any direct parameter defined for the floating rate code. The options available are: Up – Choose this option to indicate that the rate of the upper tenor slab should be used. Down - Choose this option to indicate that the rate of the lower tenor slab should be used. Interpolate - Choose this option to indicate that the rate should be interpolated between the rates of the upper and lower slabs. Round Off - Choose this option to indicate that the tenor of the component should be rounded off to the nearest whole number. The rate defined for the derived tenor will be applied to the component.
   Margin Application	Indicate the frequency of margin application by choosing one of the following options from the drop-down list.
   Margin Basis	Indicate the basis for the interest margin and the method for applying the interest margin on the selected interest component. The available options are: Facility – The system defaults the margin from the borrower facility contract with which the drawdown is linked. Tranche – The system defaults the margin from the borrower tranche contract with which the drawdown is associated. Drawdown – If this option is chosen, you must enter the applicable margin when the interest rate is fixed. This component which you select is excluded from all the processing including liquidation and this calculation type is only used for margin application. After defining this component, booked formula for main interest component needs to be modified by replacing INTEREST_RATE with INTEREST_RATE + MARGIN_RATE. By doing this the interest gets calculated based on resolved interest rate (i.e. including floating rate and spread if applicable) and the margin. Customer – If this option is chosen, then the margin will be applicable to all drawdown contracts under the selected customer.
   Currency	Specify the currency of interest rate application. The adjoining option list displays all valid currency codes maintained in the system. You can choose the appropriate one. For a Risk Free Rate interest component systems allows saving of record for RFR mapped rate code currency only. The currency chosen for limits should be a RFR code currency. For Example for RFR code SOFR (Secured Overnight Financing Rate) only USD currency record should be mapped. If in case any other currency is maintained, system validates accordingly upon save.
   Rate Fixing Days	Specify the Rate fixing days as per the requirement. Rate fixing days can have the values from zero or greater. if no values are entered system defaults it to zero.
   Fixing Date Movement	Specify the Movement as Forward, Backward or None as per the requirement from the effective revision date. If rate fixing days is greater than zero, movement is selected either as forward or backward. If rate fixing days is zero, the Reset date movement will remain blank.
   Default Rate	Specify the default rate that should be applied for on contracts under the products linked to this class. Default rate allows negative values if the negative interest is allowed for the class.
   Minimum Rate	Specify the minimum interest rate that can be applied on contracts under the products linked to this class. Minimum rate allows negative values if the negative interest is allowed for the class.
   Maximum Rate	Specify the maximum interest rate that can be applied on contracts under the products linked to this class. Maximum rate allows negative values if the negative interest is allowed for the class.
   Default Spread	You are allowed to specify both positive and negative spread as default for the class you are maintaining. The system validates this spread against the maximum and minimum spread you have specified for the currency. Subsequently, the spread will be defaulted to the contract under the products linked to this class.
   Minimum Spread	Specify the minimum spread that can be applied on the rate for the currency.
   Maximum Spread	Specify the maximum spread that can be applied on the rate for the currency.
   Base Computation	It is either simple or compounded.
   Spread\ Margin Computation	Spread\ Margin computation method can be maintained as either Simple or compounded.
   Spread Adjustment	Spread adjustment method is kept as either Simple or compounded
   Weighted Average	Select this check box to use weighted average calculation (WAC) as the RFR calculation method. The WAC here represent the simple average calculation and not compounded. The averaged RFR in this convention is the simple arithmetic mean of the daily RFRs. OBTR supports WAC to calculate base rate (BR), Credit Adjustment Spread (CAS), and Customer Margin. The WAC formula to calculate simple interest is: Figure 1-2 Weighted Average Formula Here, db: the number of business days for the interest calculation period dc: the number of calendar days for the interest calculation period ri: reference rate for the day number i within the interest calculation period ni: the number of calendar days for which rate ri applied (on most days, ni will be 1, but on a Friday it will generally be 3, and it will also be larger than 1 on the business day before a holiday N: the number of calendar days in one year (360 to 365) For more information on WAC calculation, refer to the RFR WAC sheet.