Preferences for a Deal

Stating Preferences for a Deal

Preferences are options. For instance, for a product, you have the option of:

Making liquidation automatic or manual
Allowing or disallowing rollover
Applying tax or waiving it
Applying prepayment compensation or waiving it

For a contract, you have the option (preference) of:

Liquidating automatically or manually, the principal of the deal being input. (This defaults from the product but you can change it for a specific deal)
Verifying of funds in case of automatic liquidation of repayment schedules. If you indicate that funds have to be verified, the components that will leave the repayment account with a debit balance will not be liquidated. If not, all the components will be liquidated leaving the repayment account with a debit balance (if a debit balance has been allowed for the repayment account). The payment schedule will be marked as liquidated. If a debit balance has not been allowed, the schedules will not be liquidated and aging analysis will take over.
Ignoring holidays. If you choose this preference, the schedule dates will be calculated ignoring the holiday. The automatic processing of the schedule that falls due on a holiday, however, will be determined by your holiday specifications for the product. If you indicated, for example, that the processing should be done till the day before the next working day, the schedule will be liquidated during the end-of-day run of the Automatic Contract Update function. If you specified, though, that processing should be done only till the System Date, then the schedule falling on the holiday will be processed during the beginning-of-day run of the Automatic Contract Update function on the next working day.
Choosing to ignore holidays. If you choose not to ignore holidays, you can move a repayment schedule forward or backward to the next or previous working day. You can also specify whether the schedule is allowed to move across the month in case of a holiday.
Cascading schedules. This means that if one schedule has been moved backward or forward in view of a holiday, the other schedules will be accordingly shifted. If you do not want to cascade schedules, then, only the schedule, which falls on a holiday, will be shifted as specified and the others will remain as they were.
Specifying the holiday currency
Liquidating back valued schedules

A deal inherits the attributes defined for the product it involves. However, for a specific deal you can change these inherited attributes, to suit your requirements and those of your customer. The attributes that you can change are:

The liquidation of schedules that fall due before the day on which the deal is booked
The liquidation mode (auto to manual)
The change of status for a placement (auto to manual or vice versa)

There are also some parameters you have to set for the repayment schedules for the deal. They determine whether a schedule date falling on a holiday should be retained or moved and how it is to be moved if you opt for the latter. They also determine whether funds have to be verified if a placement is marked with automatic liquidation. The attributes that have been listed are discussed in detail.

Handling a Repayment Schedule Date that Falls Due on a Holiday

You have specified that repayment schedules should be generated automatically once you indicate the frequency, number and the date of first repayment. When the system computes the repayment dates based on these values, there is a chance that one or more schedules fall due on a holiday. In such a case, you have two choices:

Ignore the holiday and retain the due date
Move it either backward or forward

If you specify that holidays are to be ignored, the schedule dates will be fixed without taking the holidays into account. In such a case, if a schedule date falls on a holiday, the automatic processing of such a schedule is determined by your holiday handling specifications for automatic processes, in the Branch Parameters screen.

In this screen if you have specified:

That processing has to be done on the previous working day for automatic events right up to the day before the next working day, the schedule falling on the holiday will be liquidated during end-of-day processing on the previous working day
That processing has to be done only up to the System Date, then only the events scheduled for today will be processed. The events of the holiday are processed on the next working day during beginning - of-day processing

Move Schedule Dates Forward or Backward

If a schedule date falls on a holiday and you have not specified that holidays are to be ignored at the time schedule definition, then you have to indicate the movement of the schedule date either forward to the next working day or backward to the previous working day. In such a case, since the schedule date itself is moved to a working day, the payment will be processed on the day it falls due, as of that day.

Move Across Months

If you have chosen to move a schedule falling due on a holiday either forward or backward, such that it falls due on a working day, and it crosses over into another month, the schedule date will be moved into the next month only if you so indicate. If not, the schedule date will be kept in the same month.

If you have not allowed movement across months but have indicated backward movement for this schedule, the schedule date will be automatically moved (forward in this case), to the next working day of the same month, that is, to May 2, despite your having indicated a backward movement into the previous working day.

Holiday Ccy

You can indicate here the country of the deal currency for which the holiday table should be checked before drawing the payment schedules related to the deal.

By default, the currency to be checked is the deal currency. If a currency other than this is specified, the holiday table is checked for both the currencies. Amendment to this field will be considered as a financial amendment.

Cascade Schedules

The question of cascading schedules arises only if:

You have specified that a schedule falling due on a holiday has to be moved forward or backward
The schedule has been defined with a definite frequency

If you have indicated that schedules should be cascaded, the schedule date for the next payable schedule will depend on how the schedule date was moved for a holiday.

The following example illustrates how this concept of cascading schedules functions:

When you cascade schedules, the last schedule (at maturity), however, will be kept for the Maturity Date and will not be changed like the interim schedules. Hence for this particular schedule, the profit days may vary from that of the previous schedules.

Liquidation

When setting up a product you specify the mode of liquidation - whether automatic or manual - for the different components of a deal. By default, all deals involving the product will inherit this definition. However, you can change the mode of liquidation, from automatic to manual, or vice-versa, while processing a deal.

Status control

While defining the product, you indicate the various status codes for the product - for example, active, past due obligation, non-accrual basis, write-off, and so on. For the product, you can specify either manual or automatic change of status.

When processing a deal, you can change the mode of status change from automatic to manual or vice-versa.

Amortization Type

You need to specify the amortization applicable to the contract only if the schedule type is amortization. The following are the amortization types you can specify for a contract:

Reducing balance
Rule 78

Ascertaining Availability of Funds before an Automatic Liquidation

When the customer’s repayment account is debited automatically by the system, you can specify that the availability of funds for liquidation of the various components of the placement has to be ascertained before the liquidation is done.

This feature is of significance when:

The components have the same schedule dates, and are serviced by a single repayment account
The funds in the repayment account are insufficient

If the availability of funds has to be ascertained:

All the components which are due will be liquidated only if funds are available in the repayment account
In case of insufficient funds, a partial liquidation is done to the extent of availability of funds. If this is so:
- The payment schedules for those components, which have not been liquidated or have been partly liquidated, will be left as outstanding. Aging analysis on such placements will be carried out as specified for the product and an appropriate compensation applied, if it has been defined for the product.
- The component(s) for which funds are available will be liquidated in the order that you have specified in the ‘Liquidation Order’ screen. This can be done if you want to allot priority to the recovery of certain components. (For example, you may want to recover the profit type of components first and then the principal). If the liquidation order is not specified for the components, then, it will be liquidated in the following order:
Compensation Profit (if one has been applied)
Profit
Principal
If availability of funds need not be ascertained and the liquidation results in the account going into a debit balance:
All the components will be liquidated only if the repayment account has been defined for overdraft. The schedules for the components will be liquidated to the extent of the debit balance allowed. If it crosses the extent of debit balance allowed (the extent of overdraft limit); the liquidation will be done with an overdraft override, which will be automatically recorded.

On the repayment account that has a debit balance, the debit profit as specified for the type of accounts (current or savings), through the Profit and Charges sub-system, will be applied.

If overdraft is not allowed for the account, the components will be liquidated to the extent of availability of funds.

Placements with payments, which have not been processed due to non-availability of funds, will appear in the Exception Report generated by the Automatic Contract Update function for the day.

Note:

For the final principal payment on maturity, the availability of funds in the payment account will always be verified.

The system will not allow any value dated amendment if the value for this field is ‘Complete’.

Rollover Indicator

This option is updated by the system. You cannot change it. If checked, it indicates that the contract has been rolled over.