Troubled Debt Restructured (TDR) Reserve Computation and Adjustment
For TDR Accounts, Reserves are calculated using a distinct approach. For this, the OFS Loan Loss Forecasting and Provisioning Application make use of the TDR flag. Whenever the flag is Y, the account is in the TDR category, the application calculates a separate reserve for TDR accounts.
For the calculation of this reserve, Expected Cash Flows are expected as a download in Staging. Using these Cash Flows, which are present in the stage account Cash Flows table, the application computes the present value of these expected Cash Flows. The discount rate is calculated as EIR for Fixed-Rate Instruments and the Current Net Rate for Floating Rate Accounts.
Then the application computes the TDR reserve as the difference between the carrying amount and the present value of these expected Cash Flows.
TDR accounts undergo the first level of aggregation but do not flow into the segment-level aggregate table.
Cash Flows provided in the staging area against a TDR account are assumed to be Expected Cash Flows and not Contractual Cash Flows. As a result of this, you must neither use Cash Flow-based nor Forward Exposure based methods for ECL computation.
- The carrying amount is the outstanding amount when the account gets flagged as “TDR”.
- As of Date (AOD), Contractual Cash Flow is discounted with the EIR. The
following functional Use Cases are referred to for use of EIR.
- When TDR 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, otherwise it uses the origination EIR to discount the Expected Cash Flow. Note: The latest Repriced Event should be earlier than the TDR Event.
- When the TDR Event and the Repriced Event are the same: For a Fixed Rate or Floating Rate Instrument, the latest EIR which is available just before these (TDR/Repriced) gets used to discount the Expected Cash Flow.