8.2.1.2 Cash Flow Delay

Due to market conditions the payments or receipts that are expected at a particular time are delayed thereby giving rise to liquidity risk. In such a scenario the payments or receipts that were expected as on date will now be available at a future date. This assumption moves the expected cash flows in a particular time bucket to one or multiple future time buckets based on a percentage of the cash flow occurring in that bucket. In a cash flow delay assumption, cash flow movement happens from previous buckets to the future buckets.

See Defining a New Business Assumption, for information on the steps involved in specifying this assumption.

The steps involved in applying the delay in cash flow timing assumption to cash flows are:

1. Identify the original time bucket and calculate the cash outflow occurring in it due to the assumption.
   This is the delayed payment or receipt amount excluding penalty which is reversed.
2. Identify the corresponding revised time buckets and the cash inflow occurring in it, including penalties on the delayed payments or receipts, if any.

   In cash flow delay assumption, the cash flow movement is always to a future time bucket. Therefore, 0% is assigned to the previous buckets in case of Increasing/Decreasing assignment as illustrated below:

   Table 7-3 Cash Flow Movement - Cash Flow Delay

   Business Assumption Definition						Computation Assignment
   Product	Currency	From Bucket	To Bucket	Delayed Amount	Penalty	Contractual Cash flow (From Bucket)	Contractual Cash flow (To Bucket)	Revised Cash flow - From Bucket	Revised Cash flow -To Bucket
   Vehicle Loan	US Dollars	10-10 Days	12-12 Days	10%	5%	30000	23000	27000 [= (30000-30000*10%)]	26150 [=23000+ (30000*10%) + {(30000*10%)*5%}]