8.2.1.3 Delinquency

This assumption caters to the large and non large customers. This assumption is based on the anticipation of the bank that there can be an emergency loss due to delinquency of its customers which will affect the future cash flows. When a customer becomes delinquent, the cash flows of the delinquent buckets (as specified in percentage and amount) are moved to the overnight bucket. If you want to specify delinquency on large customers, then large customer dimension is selected; however the computation of cash flows is same for both large and non large customers. In a delinquency assumption, cash flow movement happens from forward bucket/s to the previous bucket (Overnight).

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.
2. Identify the corresponding revised time buckets and the cash inflow occurring in it, including penalties, if any.
3. If time specific or critical obligation, record the delay and indicate a breach.

   Cash flow assignment is done in the following manner:

   
   

   

   
   

   An example of the assumption applied to product type (Business loan), and currency (USD) for Large and Non Large Customers is illustrated below:

   Table 7-4 Illustration 1: Delays assigned to a selected time bucket

   Business Assumption Definition				Computation Assignment
   Product	Customer	From Bucket	Delinquent Value	Contractual Cash Flow (From Bucket)	Contractual Cash Flow (Overnight Bucket)	Delinquent (Value)	Revised Cash flow - From Bucket	Revised Cash flow (Overnight Bucket)
   Business Loans	Large Customer	8-8Days	10%	30000	23000	3000 [= (30000* 10%)]	27000 [=(30000- 3000)]	40600 [=(23000+3000+5000+9600)]
   		9-9Days	20%	25000		5000 [= (25000*20%)]	20000 [=(25000-5000)]
   		10-10Days	30%	32000		9600 [= (32000*30%)]	22400 [=(32000-9600)]

   Illustration 2: Delays assigned to a selected time bucket

   Table 7-5 Cash Flow Movement – Delinquency

   Business Assumption Definition				Computation Assignment
   Product	Customer	From Bucket	Delinquent Value	Contractual Cash Flow (From Bucket)	Contractual Cash Flow (Overnight Bucket)	Delinquent (Value)	Revised Cash flow - From Bucket	Revised Cash flow (Overnight Bucket)
   Home Loans	Non- Large Customer	3-3 Days	15%	15000	23000	2250 [= (15000*15%)]	12750 [=(15000-2250)]	27350 [=(23000+2250+2100)]
   		4-4 Days	10%	21000		2100 [= (21000* 10%)]	18900 [=(21000- 2100)]