Modification Gain or Loss

In addition to the preceding steps, if an account undergoes a Prepayment or restructuring, the application computes the Modification Gain Loss, as specified by the IFRS 9 guidelines. The Modification Gain Loss is calculated as the difference between the Modified Net Book Value and the Ending Net Book Value. Modified Net Book Value is equal to the Net Present Value of all future Cash Flows discounted at the given Effective Interest Rate.

Prepayments and Restructuring are identified based on the Prepayment Date or Restructured Date. OFS Loan Loss Forecasting and Provisioning Application checks if these dates fall between the Last Accrual Date and Current Date, FIC MIS DATE.

Modification Gain/Loss= Modified Net Book value – Ending NBV

1. Ending NBV is the outstanding amount when the account gets flagged as “Restructured" or there is a prepayment”.
2. For the computation of Modified Net Book Value (Net Present Value of all Future Cash Flows), As of Date (AOD), Future Cash Flow is required. Future Cash Flow is discounted with the EIR. The following are functional use cases to get this EIR.
   1. When Restructured/Prepayment Event and Repriced Event are different: For a Fixed Rate or Floating Rate Instrument, if the latest repriced EIR is available then the application uses it else it uses origination EIR to discount the Future Cash Flow.
   2. Note: The latest repriced event should be earlier than Restructured/Prepayment Event.
   3. When Restructured/Prepayment Event and Repriced Event are the same: For a Fixed Rate or Floating Rate Instrument, the latest EIR is available just before the (Restructured/Prepayment/Repriced) Events get used to discount the Future Cash Flow.