7.1.1.4 Delinquency

This assumption caters to large and non-large customers. This assumption is based on the anticipation of the bank that there can be an emergency loss due to the 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. To specify delinquency on large customers, select a large customer dimension; however, the computation of cash flows is the same for both large and non-large customers. In a delinquency assumption, the cash flow movement happens from the 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 following steps are involved in applying the delay in cash flow timing assumption to cash flows:

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:

   Figure 7-1 Formulae for cash flow assignment

   
   

   

   
   

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

   Illustration 1: Delays assigned to a selected time bucket.

   Table 7-4 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
   						[=	22400
   						(32000*30	[=(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)]