Transaction Level Processing

For each account in Account Level, based on the compounding frequency, the Compounding Dates between the Last Accrual Date and Current MIS Dates are identified. For these compounding dates, additional transactions are included in the table with TXN Amount equal to ZERO. Compounding dates arrive from the Financial Year Start date. For example, if an instrument is compounding Monthly and the Financial Year start is 15-MMM-YYYY, the process will create a transaction on the 15th of every month. If the account has originated post the Last accrual date, then the compounding dates are considered between the Account Start date and the current MIS Date.

Note:

All financial transactions outflow or inflow are required; those that affect the outstanding and computation of interest. Outflow > Loan Disbursement, Withdrawal, and so on. Inflow > EMI, Prepayment, and so on. If transactions are marked as reversed or canceled. The first transaction of a new account is assumed to be a Disbursement.
These Compounding Dates are marked with Compounding Flag = Y.
Once the transactions for the compounding dates are inserted, for every account, a transaction is included for a given MIS Date, the TXN amount is ZERO.

Note:

If a transaction already exists for a Compounding date, that is, Source TXN Date = Compounding Date, the same transaction is used with only the compounding flag made Y. If the transaction already exists for an MIS Date, that is, Source TXN Date = MIS Date, then no new transaction is included. If there are multiple transactions for a given date, then the values are added up to form a single transaction.
The transactions are then sorted in ascending order of Transaction Dates.
The transactions are now ready for Interest computation. Subsequently, the process parses through each of the transactions, one by one, to compute the Interest amounts for every transaction. To enable this, the process requires the following data:
  • Accrual Basis Code
  • Number of days

For the first transaction; Txn Date - Last Accrual date

For all subsequent transactions: Current Txn date - Previous Txn Date
  • Starting Net Book value (for the first transaction):

If the Modification flag (on Last accrual date) = N; Ending Net Book Value (on Last Accrual date)

If the Modification flag (on Last accrual date) = Y; Modified Net Book Value (on Last Accrual Date)

After these steps, the Effective Interest Amount, Compounded Effective Interest Amount, and the Ending NetBook values are computed for each transaction, by taking EIR, Number of Days for Interest accrual, Accrual basis code (for Number of days in a year), Compounding Flag, Starting Book value, and Transaction amount into consideration.

Once the Ending Book value is computed for a given transaction, the same is used as the Beginning Net Book Value for the next transaction.

The Effective Interest Amount for different stages is calculated as follows:
  • If Stage 1 or 2: EIR Interest Amount = NBV * Days * (EIR % or Days in Year)
  • If Stage 3: EIR Interest Amount = (NBV - Allowance) * Days * (EIR % or Days in Year)
  • If Stage 4: EIR Interest Amount = (NBV - Allowance - ECL DOIR) * Days * (EIR % or Days in Year)

The Compounded Effective Interest Amount is computed by compounding the interest computed for each transaction to the previous compounded amount. If the transaction is marked as a compounding one, that is, the Compounding Flag = Y, then the Compounded interest is made as ZERO. The total compounded interest to date will be added back to the Net Book Value.

The Ending Net Book value for each transaction is computed as:

If Compounding Flag = N, Ending Net Book Value = Starting Net Book Value + Transaction Amount

If Compounding Flag = Y, Ending Net Book Value = Starting Net Book Value + Transaction Amount + Effective Interest amount + Compounded Effective Interest Amount to date.

Note:

The transaction amount must be adjusted for signage depending upon Db Cr Indicator.