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Past Due Processing - User Guide

R16 AMR
May 2016

©2016 Temenos Headquarters SA - All rights reserved.

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Table of Contents
Introduction 3
Purpose of this Guide 3
Intended Audience 3
Past Due Processing Overview 4
Past Due Processing Configuration 5
Setting processing rules - PD.PARAMETER 5
Application Design 5
Past Due Processing Deal Processing 15
Overview 15
Processing a loan - PD.PAYMENT.DUE 16
Interest Capitalisation 28
Supporting PD Applications 29
Links to other applications 32
Asset quality and provisioning 34
Example of Provisioning 39
Repayment of written off contracts 54
Past Due Processing Accounting 65
Income Recognition 66
Accounting for Provisioning 67
Accounting for financial Write-off 68
Past Due Processing Enquiries and Reports 69
Enquiries 69
Reports 69
Past Due Processing Delivery 72
PD.ACTIVITY 72
PD.ADVICES 72
Past Due Processing Limits 74
Limit Update Events 74
Note on Reducing Limits 74
Note on Accounts 74
Past Due Processing Services 75
Close of Business Services 75
Automatic Pay-off of PD 76

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Introduction

Purpose of this Guide


This user guide describes monitoring and controlling overdue loan payments. It also explains the processing of a loan, asset quality and pro-
visioning, income recognition, and account for provisioning.

Intended Audience
This user guide is intended to the following users / user roles:

Role Description

Credit Officer Handles Credit appraisal, Sanctioning of limits, Disbursal and Servicing of Loans

Credit Manager Handles the entire Credit sanction process, including consistent application of credit policy and periodic credit reviews
of existing customers

Payments Officer Process transactions which involve Inward and Outward Remittances, Clears Operations and Cheque collection

Payments Super- Authorises remittances, clears and cheque collection transactions and ensure adequate controls and risk processes are
visor followed

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Past Due Processing Overview

The Past Due Processing module allows users to monitor and control overdue loan payments.

Payments to Loans monitored by the PD module are only made where funds are available.  If payment is not made, the contract becomes ‘over-
due’ and can be monitored and processed accordingly.

Whether a loan is monitored by the Past Due module or not is determined by a flag set on the contract, the LIQUIDATION.MODE may have
one of the following values:

MANUAL The underlying contract will always pass the debit to Past Due for control, regardless of the availability of
funds.

SEMI- The underlying contract will utilise funds that are available on the specified account but if there are insuf-
AUTOMATIC ficient funds then the debit is passed to Past Due for control.

AUTOMATIC The underlying contract will not invoke Past Due processing and the due amounts are debited to the specified
account as per the application rules.

Liquidation Mode Values

USE.AVBL.FUNDS is a field available in PD.PARAMETER, which, when activated, will use any funds available in the respective liquidation
account to settle the payment due partially and create a PD for the shortfall.

Contracts input via the following T24 modules can currently be monitored by the Past Due module:

•          Swaps

•          Money Market

•          Mortgages

•          Loans and Deposits

•          Accounts

Where a loan is monitored by PDs, and a payment is not made on its due date, that payment becomes ‘overdue’.  Overdue payments go through
a T24 debt ageing process - the PD module performs different actions as the payment becomes more and more overdue.  PDs will:

•             Accrue, charge and post penalty interest

•             Send chaser advices for the overdue amounts

•             Report the loan according to the age of the debt

PD processing is at payment level.  Each payment can travel through the PD debt cycle independently.

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Past Due Processing Configuration

Setting processing rules - PD.PARAMETER


How PDs deal with the overdue payment is determined by the settings on PD.PARAMETER.  You can have a PD.PARAMETER record for each
loan category, so PD processing can be different for the various products. For example the overdue processing cycle will usually differ when deal-
ing with an overdue Mortgage and an overdue Money Market trade. Where no record is defined for the category of product being processed, the
Past Due module defaults to the company settings.

A record with an id equivalent to the company id must exist on the PD.PARAMETER file to allow standard PD processing.

Where AC is linked to PD then the PD.PARAMETER record AC must also exist.

Penalties can be processed based on several key settings. After the relevant PD.PARAMETER record has been used the settings within that
record will control how the PD processing continues.

The PEN.CALC.BASIS and PS.CALC.BASIS fields are used to decide what the penalties are calculated on.

For example the penalty PE type can be based on the outstanding PR element, the IN element or several combinations depending on the bank
rules or client agreement. As well as individual elements there are logical groups such as OD (this is the overdue amount only) or OS (this is
the total of the overdue and the current loan outstanding). The former is all the overdue elements meaning all outstandings are used in the pen-
alty calculation; the latter is a more punitive penalty as it calculates on both overdue and current outstandings (this is sometimes used where a
discount rate is applied for current loans but on any overdue the discount is forfeited).

These files can only be maintained online i.e. cannot be input or amended once COB has started, even if NS (Non Stop Processing) is installed.

Application Design

Lifecycle rules
A payment in PD may pass through the following statuses in its ‘life’:

CUR → PRE → GRA → PDO → NAB → WOF 

Status Processing

CUR Current This is the status of a past due payment when it is fully up to date (i.e.) there is nothing outstanding

PRE Pre Grace No penalties are applied whilst the payment is in Pre-Grace. Penalties are neither calculated, accrued nor posted

GRA Grace The payment has not been overdue for long. During the grace period the penalty is calculated for information purposes
but no accruals are posted. Depending on parameter settings a payment made during the grace period may have the cal-
culated penalty waived or imposed.

PDO Past Due The payment is now definitely overdue. The penalty interest is calculated, accrued and posted.
Obligation

NAB Non The payment has been overdue for some time and the bank is unlikely that it will receive payment. Hence penalty
Accrual interest accruals cease, though the calculations continue.
Basis

WOF Write off The past due payment will not be received and so is written off from the bank’s books

FWOF Financial If this option is chosen, then not only the past dues but also the amount in the underlying parent contract is written
write off off.

PD Payment Life Cycle

When a payment falls due, it is initially in PRE grace.  It progresses to GRA, then to PDO and then to NAB. The payment can become CUR
through full payment or WOF if the bank decides to manually write off the payment.

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It is possible to improve the status from NAB to PDO on account of partial payment that clears off the NAB portion of the dues or by rede-
fining the NAB.PERIOD.INT and NAB.PERIOD.SPREAD days. This functionality could be invoked by flagging CHANGE.STATUS to 'YES' in
PD.PARAMETER.

PD.PARAMETER contains the time settings that determine when a payment moves from PRE to GRA, from GRA to PDO and from PDO to
NAB, and may be defined as a number of days or as a number of payments. In case the change of status from PDO to NAB is not to be auto-
mated and controlled only manually, 'NO' may be input in NAB.PERIOD.INT and NAB.PERIOD.SPREAD. In this case status of the PD would
be retained as PDO till such time the record is manually maintained to NAB.

PD.PARAMETER file

Penalty interest details


Once a payment becomes ‘due’, the loan module stops calculating contractual interest and hands the payment over to PDs.  PDs charge ‘pen-
alty’ interest, which will usually be higher than the rate on the contract.  On PD.PARAMETERyou can define:

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•          Penalty calculation rules, e.g. the amount used to calculate penalty. Any combination of the amounts overdue may be used to calculate
the penalty, e.g. principal portion of the payment due, the total principal outstanding on the contract, charges, interest, etc.

•          Default penalty rates, both fixed and floating

•          Maximum and minimum penalty rates

The amount used to calculate penalty spread for CONTRACT.METHOD 2 is configurable.  CONTRACT.METHOD 2 accrues penalty interest
and penalty spread separately.

Penalty interest is calculated at the underlying contract rate for an amount defined via PEN.CALC.BASIS on PD.PARAMETER.

Penalty spread is calculated at the PENALTY.SPREADRATE for an amount defined via PS.CALC.BASIS on PD.PARAMETER, with the out-
standing amount as the default.

CONTRACT.METHOD 4 accrues penalty interest and penalty spread together.

The rate used is the underlying contract rate plus the PENALTY.SPREAD defined on PD.PARAMETER.

The amount used is defined via PEN.CALC.BASIS on PD.PARAMETER,. PD.BALANCES records show the spread component of the rate used
in PENALTY.SPREAD.

The rate from an underlying LD contract (where a key and spread is defined) includes rates applicable for the respective BASIC.INTEREST key
plus the spread on the deal. Hence, the user may define only the penalty spread in PD.PARAMETER as PS.

It is possible to stipulate that the penalty spread will be automatically calculated by the system, by setting the AUTO.ADJ.SPREADto YES. In
such cases, the field PENALTY.SPREADcannot be input.  The penalty spread will then be calculated by the system as the difference between
the rate in PENALTY.RATE and the rate of the underlying contract. If there is a value in PENALTY.RATEat the contract level, it will take pre-
cedence over the rate in PENALTY.RATEat the PD.PARAMETER level. The calculation of spread will begin when the number of days/number
of instalments stipulated in PE.SWITCH.PERIOD has been crossed. The basis for calculation of penalty spread will be on the base specified in
POST.GR.PS.CALC. If it is required that penalty spread calculations continue even after all past dues are cleared, RESTORE.CALC should have
a null value.

Waiving option for the Grace period penalty interest


Two PD.AMOUNT.TYPES WE and WS may need to be added for Waiver of penalty interest and spread respectively.

PD.AMOUNT.TYPE

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PD.AMOUNT.TYPE

These amount types need to be added to the PD.PARAMETER record as below.

PD.PARAMTER file

The two fields WAIVE.GRA.PE & WAIVE.GRA.PS in PD.PARAMETER and PD.PAYMENT.DUE when flagged to “Yes”, will waive penalty
Interest/spread amount calculated during grace period instead of imposing it. The fields cannot have different values i.e. one of them set to YES
and the other left Null.

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PD.PARAMETER file

The value from the parameter record gets defaulted to the underlying contract where the values can be changed, if required.

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PD.PAYMENT.DUE record

The waived penalty interest (and tax if any) will be shown under WE and the waived penalty spread amount (and tax if any) will be shown under
the WS component.

When the contract moves to post grace period, it is not be possible to waive PE/PS by using these fields. However Adjustment operation can
be done so that the penalty interest (PE) and penalty spread (PS) can be adjusted to 0.

In the event of partial repayment during grace period, PE/PS can still be waived using new fields. When PD moves from grace period to
PDO/NAB, PE/PS would be calculated from the start of the grace period on current outstanding overdue amount and not from the partial
repayment date.

Interest basis
The interest basis (366/360, 366/360 etc) for calculation of penalty charges, spread etc may be different from that used in the underlying con-
tract. The new basis that the system has to use when a contract moves from its respective application to PD, can be stipulated in
INTEREST.BASIS in PD.PARAMETER. If left blank, the basis used in the underlying contract is continued.

Suspension of Income in Underlying Deal


It is possible to suspend income on the associated LD/MG/AZ deal should the past due become NAB. Suspension of income includes interest
and commission on the LD and interest only on MG/AZ. This functionality is invoked by flagging SUSPEND.INCOME in the respective
PD.PARAMETER. Such suspension of income can be triggered for selective PD.PARAMETER records if so desired.

Any amount to hit limit


In the SYSTEM record of PD.PARAMETER, if the field IMPACT.LIMIT is set to YES, then all overdue amounts that flow from the parent
application to PD, will hit the customer’s limit. That is, apart from the overdue principal, other past due amount like interest, charges, fees and
commission will also hit the limit. However, accruals on the PD contract itself like penalty spread and charges will not affect the customer
limit.

Repayment order
Typically, a contract may have several payments outstanding.  Each payment will have a principal and an interest portion, and could also have
associated amounts of penalty, tax, charges, etc.  When the client makes a payment, this may not cover the full overdue amount.

You can specify on PD.PARAMETER the order in which the outstanding amounts are repaid by default.  All amounts of a ‘type’ (for instance,
PR is the Principal ‘type’) will be paid together, and paid in reverse date order.  That is, if PR is defined in PD.PARAMETER as the first type to
be paid, and the client pays enough to cover half the principal outstanding, the youngest principal payment will be paid off first, and so on until
the entire repayment amount is used up. 

It is possible to repay both on line and via Close of Business Semi-automatic processing in chronological order i.e. the oldest repayments are
paid first.

REPAYMENT.METHOD on PD.PARAMETER defines the type of repayment processing; three methods of repayment are available.

1.    Repayment order by type as defined in REPAYMENT.ORDER, the current default

2.    Total outstanding by date, total repayment for a given repayment date in chronological order with MIN.AUTO.PERCENT processing taking
place, repayment will only take place if there are funds available to cover the whole amount overdue for that date (or a defined percentage of it)

3.    Repayment order by date, repayment will take place in chronological order, and by repayment order for each date, repayment will stop
when no funds are available to cover an amount type for a given date, i.e. partial repayment of the debt for a given date can take place.

If the requirement is to use the available funds in the ORIG.STLMNT.ACT for appropriation and not overdraw, USE.AVBL.FUNDS may be
flagged to 'YES'.  Should the liquidation account have a value defined in LOCKED.AMOUNT field in ACCOUNT, such amount for the respective
period would be reckoned while deriving the amount available for retry.

The PD Close of Business processing can attempt repayment up to NAB status, and process multiple PD.BALANCES records.

RETRY.REPAY.STATUS on PD.PARAMETER is used to define the PD status up to which repayments will be attempted.

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PD.PARAMETER FILE

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PD.PARAMETER File (CONT)

The COB retry also covers PDPD (PD deals without underlying contracts) contracts. However, should the user desire to avoid retry for a par-
ticular contract, PREVENT.RETRY field in the PD contract may be flagged YES through Maintenance operation.

Accounting Rules
The other fields on PD.PARAMETER allow you to specify the CATEGORY and TRANSACTION codes used for reporting PD amounts.

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PD.PARAMETER File specifying Category and Transaction Codes

AC Parameter Set-up
For the account to be linked to PD, the fields AC.CP.CATEG.FR, AC.CP.CATEG.TO, AC.CB.CATEG.FR, AC.CB.CATEG.TO, AC.OD.DAYS
need to be defined in this parameter record. The first two fields form a multivalue set and they are used to define the revolving credit account
categories to be linked to PD. The next two fields define the account category range for linking overdrawn accounts into PD. The field
AC.OD.DAYS field defines the number of days from which the overdrawn account would be linked to PD.

For any other parameter record, no inputs are allowed into the above-mentioned fields. If there were no ‘AC’ parameter record, then accounts
would not be linked to PD at all.

No penalty could be calculated on the account PD. allowing only the contract method ‘5’ in the field CONTRACT.METHOD of the ‘AC’ para-
meter record ensures this.

Separate parameter records could also be set-up for the account categories input in the relevant fields in ‘AC’ parameter record. These records
also don’t accept penalty calculation.

For any other account not within the category of CB and CP ranges mentioned above, PD would be written for the unauthorised overdraft por-
tion on the day such account is overdrawn. For an account with no limit any debit balance would be construed as unauthorised and for one
with limit, the drawings in excess of limit would be considered as unauthorised. A set of accounting entries would be raised with ASSET.TYPE
OVERDUEPR (Debit) and CONTRAAC (Credit) for such unauthorised portion. The actual balance in the account would be retained in
ACCOUNT application. The user may read DEBIT and CONTRAAC ASSET.TYPES in one line and OVERDUEPR in another in order to report
authorised and unauthorised overdraft in different lines.

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Past Due Processing Deal Processing

Overview
If a loan is monitored by the Past Due module and a payment occurs, it is processed by the contract as usual.  However, instead of debiting the
repayment account (which may not have funds), the contract debits the G/L for overdue payment.  The payment is handed to PDs.  Payments
may also be monitored by PDs where they have been input via PD.CAPTURE, which is described later in this chapter.

l Processing a loan - PD.PAYMENT.DUE


l Links to other applications
l Asset quality and provisioning
l Example of Provisioning
l Repayment of written off contracts

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Processing a loan - PD.PAYMENT.DUE

A new PD Contract is made in the application PD.PAYMENT.DUE, which contains all payments which have fallen due and not yet been fully
repaid.  ‘PD’ plus the original contract id identify a contract, e.g. a Mortgage contract with an Id of MG0103100412 would have a PD record
with an Id of PDMG0103100412. (Contracts created through the PD.CAPTURE application have a prefix of “PDPD”, e.g. PDPD0101500366.)

The file holds details about the underlying contract as well as all the outstanding payments due.  For each overdue payment, the PD contract
records the date the payment fell due, and the amounts currently owed for each ‘amount type’.  Initially, the payment is made up of Principal
and Interest, but other amounts may be added - for instance as penalty interest is earned, a penalty amount will be added to the payment. 
Valid amount types are stored on PD.AMOUNT.TYPE, which is described later in this chapter.

Automatic processing
As a payment ‘ages’ - as it becomes more and more overdue - PDs will automatically change the status of the payment according to the dates
set in PD.PARAMETER. 

The status of the payment determines the penalty interest processing.  PDs check the rules set in PD.PARAMETER to determine:

•           Whether interest should be calculated, accrued and posted.

•           The basis for calculating penalty interest.

The basic penalty interest and the penalty spread for each payment is recorded as additional amounts on the PD contract record in
PD.PAYMENT.DUE. 

The status of the payment can also trigger chaser advices.  Flags in PD.PARAMETER determine whether an advice is sent on change of status
from GRA to PDO and from PDO to NAB.  The advice is a free-format 1600 message. 

There is one PD.PAYMENT.DUE record for the entire contract, but within the record each payment is monitored separately.  Each payment
can have a different status, and will accrue interest and trigger advices independently of the other payments.  There is also a field that holds the
overdue status for the whole contract, which is always set to the status of the ‘worst’ payment.  Hence if there are two payments outstanding
on a contract, one in GRA and one in PDO, the contract status is PDO.  This contract status is recorded on both the PD.PAYMENT.DUE
record and the original contract record, so it can be included in all reports and enquiries. 

In addition to automatic processing, some overdue processing is controlled by input to the PD contract.  The action PDs performs as a result
of PD.PAYMENT.DUE changes is determined by the contents of the ‘operation’ field.  Different operations require different fields to be filled
in.  PDs will automatically input-protect the fields that are not required for the operation being performed.

Operation - Schedule
The ‘Schedule’ operation allows definition of future PD events for that contract:

•             Penalty rate or spread changes to be input for a future date.

•             Regular chaser advice to be scheduled on a set frequency - e.g. every week.

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The other OPERATION codes allow manual changes to the overdue processing for the contract; these changes take effect immediately.

Operation – Repay
The most important operation is Repay.  All payments to loans monitored by PDs are made manually via the repay operation.

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PD.PAYMENT.DUE.REPAY Record

PD.PARAMETER contains a hierarchy of types of outstanding payments.  Separate records can be set up for different categories, so the repay-
ment order can be different for each product. For example the following order could be set up for a given loan category:

•          Outstanding Penalty Interest

•          Outstanding Interest

•          Outstanding Principal

The implication of the hierarchy is that before any outstanding principal can be repaid, all the penalty interest, then all overdue interest must be
repaid across the whole set of individual overdue payments for the loan.

The system automatically uses these rules to allocate any repayment against the various types of outstanding from when the payment is input. 
However, the user can override this default repayment order.  If this occurs, the user is presented with standard overrides before the payment
is finally committed.

When repayment is made, the REPAYMENT.ACCT will be the default repayment ACCOUNT that is the original settlement ACCOUNT nom-
inated on the underlying loan contract. This ACCOUNT may be amended at the time of any repayment input, or during contract maintenance.

Each payment receipt is recorded in the history of the Past Due application to provide a full audit trail.  There is also a separate file,
PD.REPAYMENT, which holds details of each repayment made for each contract.  This file is described later in this chapter

For a given contract, there may be many payments outstanding, each made up of different amount types.  All outstanding amounts for the con-
tract can be paid, or partial repayment can be made.  Where part payment is made, PDs matches the money available against the outstanding
amounts according to the order specified on the PD.PARAMETER record, to determine which amounts should be paid off and which should be
left unpaid.

Operation - Maintenance
The MAINTENANCE operation has several uses:

1.      To change the way the exposure of the overdue is reported, by changing:

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•          The LIMIT.REFERENCE

•          The PORTFOLIO.NO

2.       To determine accounting rules:

•          Whether accounting entries are netted over the client account.

•          Whether the default settlement account is used.

3.      To change the status of individual payments.

4.       To change the value of the penalty waiver fields.

The status change option is mostly used to change payments to NAB (Non Accrual Basis) or WOF (Written Off) status if the user judges that
there is little chance of recovering that payment. 

Hence the status of a payment can only be made ‘worse’ - i.e. you can change a payment from GRA to PDO, or from GRA to WOF, but you can-
not change a PDO payment back to GRA.  Similarly, a recently overdue payment cannot be in a ‘worse’ status than an older payment.  For
example, a loan has two payments overdue - one 2 months overdue, and in PDO, and one 1 month overdue, in GRA.  If you choose to write off
one payment, it will be the older, PDO payment.  T24 will not let you put the GRA payment into WOF until the PDO payment has been writ-
ten off. 

Another option that can be chosen is FWOF (financial write-off). Unlike the WOF option, which is used to write off only past dues of a contract
(after which the PD contract returns to CUR status), FWOF is used to completely write off a contract (the past dues contract as well the con-
tract from the underlying application). Therefore, if there is an underlying contract for a PD, it first has to be moved to past due for an FWOF
operation to be done. After the PD is in FWOF status, all calculations in the PD contract for penalty interest/spread will be frozen, but will con-
tinue to be shown in the PD contract till the user decides to move the contract to history. For this purpose, he can use the field
MOVE.TO.HIS.

PD.PAYMNET.DUE WOF record

Operation – Adjustment
The ADJUSTMENT operation is used to adjust the outstanding payment amounts, by type, either upwards or downwards or to zero.

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If the adjustment is done to Asset Types PE and PS, entries are passed to CATEG ENTRY file if the PD is in OVERDUE status and to
RE.CONSOL.SPEC.ENTRY file (into Asset Type SP) if the repaid status is NAB, into the respective PL category and Asset Type respectively.

If adjustment is done to any other PD.AMOUNT.TYPE, input of ‘Liquidation Account’ is mandatory. For the amount of adjustment done,
STMT.ENTRY is raised into the liquidation account mentioned.

PD.PAYMNET.DUE Adjustment Screen

PD.PAYMENT.DUE Rounding
The option to override the system setup for currency amount rounding can be set specifically for PD. This is done first in PD.PARAMETER,
which is then used to default into both PD.CAPTURE and PD.REPAYMENT.DUE level is provided by use of field ROUNDING.RULE this
links to the system table EB.ROUNDING.RULE where various user defined rules can be preset. Although defaulted from PD.PARAMETER,
both PD.CAPTURE and PD.REPAYMENT.DUE can be set individually. The field name is ROUNDING.RULE on all three files for consistency.
Rounding is performed on the interest & charge accounting in PD.

PD accrual options
The normal accrual calculations used in PD can be overridden by user-defined rules, which are defined in EB.ACCRUAL.PARAM this is done by
use of the field ACCRUAL.PARAM on both PD.CAPTURE and PD.PAYMENT.DUE.

Since amendments to accrual calculation methods are unique to each bank and somewhat rare there is little point is showing an example spe-
cific to PD other than to direct the reader to the User Guide section on EB.ACCRUAL.PARAM itself.

ASSET CLASSIFICATION AND PROVISIONING


The field ASSET.CLASS is used to input the classification of the underlying contract (e.g) standard, sub-standard etc. The classification is user
defined and user input. The field PROVISIONis meant to input the percentage provision made on the contract. The values held in these two
fields are meant for information purposes only.

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PD.CAPTURE
PD.CAPTURE is an application that allows loans already in arrears to be monitored by PDs.

It is used:

•          For take-over of loans already in arrears in new implementations of Past Due.

•          For manual capture of due amounts where the loan has not been monitored by Past Due from the start.

It enables the user to manually create or update PD.PAYMENT.DUE contracts for back-valued overdue payments. Another feature is that it is
not necessary for an underlying loan contract to be present on the T24 system in order to raise PD.PAYMENT.DUE contracts. Thus, due
amounts on accounts can be processed by Past Due.

If the PD.PAYMENT.DUE contracts to be raised/updated has an underlying loan contract on the system, then the CONTRACT.NUMBER field
on PD.CAPTURE must contain the relevant loan Id. Once this is entered certain information will be defaulted from the underlying loan and the
user then has to enter details of the overdue payment.

If the PD.PAYMENT.DUE contract to be raised does not have an underlying loan contract on the system then the CONTRACT.NUMBER field
on PD.CAPTURE must contain a value of “NEW”. The user will then have to enter certain information about the PD to be raised as well as
details of the overdue payment. The PD.PAYMENT.DUE contract raised will have an Id with a prefix of “PDPD” and the actual Id will be held
in the field NEXT.PD.ID on the PD.CAPTURE file.

The only accounts that can be captured using PD.CAPTURE are those whose category is mentioned in AZ.PRODUCT.PARAMETER as a loan
type.

NOTE : If a PD.PAYMENT.DUE contract raised by PD.CAPTURE with the prefix of “PDPD” in it’s Id needs to be updated using
PD.CAPTURE then the CONTRACT.NUMBER field should contain the “PDPD” Id and not “NEW”.

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PD.CAPTURE.EXIST Record

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PD.CAPTURE NEW Record

There is no need for the penalty interest amount to be provided as it will be calculated from the information stored, as per the current pro-
cessing by the Past Due module.

If the PD.CAPTURE entry makes an update to an existing PD.PAYMENT.DUE contract and the value date entered is one already present on
the contract then any new payment types due will be appended to the existing types. However, if any of the new types already exist on the
PD.PAYMENT.DUE contract then the new amount due will be added to the existing amount.

The amount entered in the OUTSTANDING.BAL field will be used to calculate the penalty interest and/or penalty spread depending on how
the relevant PD.PARAMETER record has been set up.

Any new entries through PD.CAPTURE may affect the status of overdue items already present depending again on how the relevant
PD.PARAMETER record is set up.

It is important that the Bank populates the BASIC.INTEREST table with the correct interest rates for all the back-valued events. The Penalty
Interest will be calculated depending on how the relevant PD.PARAMETER record is set up. Where the rate calculated by the system does not
correlate with the rate at the time of the take-over process, it is possible to change this rate by performing a rate change (RC) type schedule
once the PD.PAYMENT.DUE contract is created.

Settlement based on instalment definitions


The field PAYMENT.ROLLOVER in PD.PARAMETER which will accept a value only based on the below conditions. Once the parameter
record is authorised, this field is a No-change field.

a) Sub pay setting should be set as Yes.

b) Repayment method should be 1.

c) Penalty capitalization not allowed.

d) PE & PS should be the first two components in the Repayment order.

To capture the instalment components (PR, IN and CH etc), use the multi-value field INS.AMT.TYPES in PD.PARAMETER.

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Multi value fields in the PD.PAYMENT.DUE store the instalment due amount with due effective date.

During the due creation process, the system will update instalment due amount fields in the PD record based on the instalment definitions in
the PD.PARAMETER. On repayment process, the instalment amount set of fields will be nullified/ reduced accordingly.

In case the repayment is equal to or more than one instalment, the system will rollover the residual balances to the next due date and the old-
est overdue instalment date is moved forward.

If the repayment is on the last due record; then no rollover will happen even though user has repaid the equivalent of instalment amount. The
system will update the exception file PD.ROLLOVER.DETAILS with residual balances amount in PD to intimate the user for further action.
This file can be viewed only from the jbase prompt.   

llustration:

In the example shown, annuity schedules have become overdue for payment.  A screenshot of the PD record is as shown.

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Screenshots of the first two PD.BALANCES records are as shown.

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Suppose a repayment of 10000.00 is input. This repayment is enough to fully repay the first due record and part amount of the second due
record. After the repayment, the PD record is updated as shown.

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The oldest due record (in this case, the record due on 01 Dec) is fully repaid and the PD.BALANCES record moves to history. The balances
rollover to the next PD.BALANCES record of 08 Dec and the accruals will then be based on the new balance amounts.

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Interest Capitalisation
Capitalisation is permitted for both Penalty Income (PE) and Penalty Spread (PS) with frequencies set in numbers of months.

The fields, PE.CAP.FREQ and PS.CAP.FREQ can be entered on the PD.PARAMETER table and values can be input in each parameter record.
This would enable the user to capitalise interest at different frequencies for different types of Past dues if so desired. This field would specify
the date and frequency of the next accrual and would be rolled over to the next effective date during Close of Business on the capitalisation
date.

The field validations are similar to other T24 frequencies like:

•          8 numeric standard date characters followed by a 5 alphanumeric frequency.

•          Date input must be equal to or greater than today.

•          The frequency should be specified in number of months.

The dates and frequencies in PE.CAP.FREQandPS.CAP.FREQ should match. Two separate fields are provided so as to facilitate having cap-
italisation on either component and not on the other, if so desired.

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Accounting
ASSET.TYPES called CE (Capitalised Penalty Income) and CS (Capitalised Spread) are used to categorise the different types.

On the Capitalisation date, the amounts that have been accrued in PE and PS would get posted to CE and CS (Credit into Asset Types PE and
PS and Debit to CE and CS). Should the user desire to charge Penalty interest (and Spread) on the capitalised interest also, CE and CS may be
included in the PEN.CALC.BASIS and PS.CALC.BASIS. Capitalisation would be for amounts that have been accrued till yesterday and today’s
accruals would get posted to PE and PS as per standard T24 functionality.

Based on the repaid status on the PD record, movement entries would be raised for CE and CS also, in line with other ASSET.TYPES. While
the PD is in OVERDUE status, the CE and CS would be kept in OVERDUECE and OVERDUECS respectively. On change of PD status to NAB,
movement entries would be raised by the system and the balances would be moved to NABCE and NABCS. Effectively, since individual bal-
ances are maintained separately, it is possible to report capitalised interest and accrued interest in different lines in the General Ledger of the
bank. In the RE.CONTRACT.BALANCES file also, CE and CS values are captured separately.

When the PD changes status from OVERDUE to NAB, the reversal of interest (if so set up in the Parameter) from P&L will be for the balance
in PE and CE (PS and CS). The balance in CE will be moved to NABCE and the accrual (PE) will be moved to respective SP Asset Type in line
with existing T24 functionality.

If the CRF.BY.TYPE is set to ‘NO’ in the SYSTEM record of the PD.PARAMETER, CE and CS would be clubbed together with other dues and
stored under OVERDUEDB or NABDB depending on the repaid status of the PD.  On the capitalisation date, balances in PE and PS would get
moved to OVERDUEDB or NABDB instead of CE and CS.

Adjustment during migration


At the time of migration onto T24 , the bank may have existing CE and CS balances for various PD records. These balances cannot be taken
over as Principle (PR) or Interest (IN) dues and they have to be built by accruals in T24. Based on the value dates of the balances, PE and PS
values will be accrued in T24. The bank may have to do the following adjustments after creation of PD record:

•          Since first capitalisation in T24 would happen only subsequently, the values of CE and CS would be stored in PE and PS respectively
till the next CAP date.

•          On the next CAP date the balances in PE and PS would get transferred to CE and CS by movement entries raised in T24

•          The value of CE calculated after first COB would be less than the CE value that was intended to be taken-over. This is because cap-
italisation in T24 would be effective the date mentioned in the Parameter and hence, if capitalised interest were also to be part of penalty cal-
culation, the amount calculated in T24 would be less to this extent. Hence, after take-over is complete, the PD record should be manually
‘A’djusted to increase the PE portion to the extent that it has accrued less. On the next capitalisation date, the entire amount in PE would get
moved to CE.

•          This phenomenon would continue for one more frequency. On the first working day in T24 , there is no existing CE (this will get built
only on the first CAP date) and hence the accruals will be on the ‘due base’ less the CE portion. So the bank may have to do a similar ‘A’djust-
ment on the first CAP date also in order to prop up the interest to the right figure. Else, such amount could be calculated in the beginning itself
and PE amount adjusted immediately after reconciling the take-over balances.

•          Similar adjustment may have to be done for Penalty Spread (PS) also, if need be.

•          Effective the first CAP date, the accruals and capitalisation will happen in the manner defined.

Supporting PD Applications

PD.AMOUNT.TYPE
This file defines the different payment amount types allowed in the PD module. It contains a description used for enrichment purposes as well
as defining the debit and credit TRANSACTION codes for the types. A TAX code may also be input as well as a position type for Position Man-
agement.

The following types are allowed:

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Both CP and CB are off-Balance sheet items.

PD.SCHEDULE.TYPE
This file defines the schedule types permitted for the PD contract. It contains a description field for enrichment purposes and in the future may
allow a charge or commission to be levied when a schedule is processed.

Currently the main schedule types allowed are:

Rate Change (RC)


Is used to define the change in rate scheduling. Currently back valued and current date revaluations are allowed. Future rate change definitions
may be allowed in later enhancements to the PD module.

Spread Change (SC)


Is used to define the schedule for a spread change. Again, this can be current valued or back valued. However, it cannot be forward valued.

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Chaser Advice (CH)

Used to define the schedule for Chaser advice production.

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Links to other applications

Moving PD outstanding to another Branch


It is possible, provided the system has been configured correctly to move outstanding contracts from one branch to another where multibook
processing is installed.

Pre-requisites
Add in COMPANY record for all the Branches (including the Lead Branch) field PGM.AUTO.ID as ‘EB.COMPANY.CHANGE”

Create a new record with ID Start No in AUTO.ID.START for EB.COMPANY.CHANGE

Create STANDARD.MAPPING record PD .PAYMENT.DUE this should have the routine PD.COMPANY.CHG.VAL in field
CONT.MOVE.CHK.RTN as shown below:

Routine for PD contract movement

The application EB.COMPANY.CHANGE is used to affect the transfer, which is limited to PDPD type contracts.

After the contract has correctly validated and the cob processed have run the account, crf and overdue record will be transferred across to the
specified company.

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Moving PD contract to another branch

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Asset quality and provisioning

Banks value loans at historical cost (face value of the loan as noted in the loan contract) and make periodical adjustments to the loan value
depending on risk perception. Banks and regulators in many countries use delinquency as the main benchmark, measured as number of days or
months loan payments or past due for loan classification. 

Though loans are classified into various categories to reflect the risk involved, at a higher level, loans are broadly classified as Performing or
Non-Performing assets. The notion of non-performing loans or assets is used to determine the asset quality of a bank. 

Loan classification has a direct bearing on a bank’s income statement. The process of provisioning involves taking a charge against the bank’s
income as a provision for future default. Correspondingly a provision is created as a liability in the bank’s balance sheet against the loan asset. 

The salient features of the provisioning function in T24 are:

l Parameter table to capture the details regarding norms for asset classification, income recognition and applicable provision for each
risk category etc.
l Asset classification based on PD ageing, monitoring the contracts and updating the asset class at contract level and in customer
record.
l Calculation of required provision and generating necessary accounting entries for provisioning, at desired frequency.
l Maintain data on written-off loans. This would mean generating necessary accounting entries at the time of write-off and maintaining
the account balances for recovery. 
l Facility to record recoveries against written off loans and generate necessary accounting entries.
l Table to record reasons for write-off.

Set up for provisioning


LN.ASSET.CLASS is the application where the customer defines the various internal classifications used. The ID of the record is numeric and
the description of the numeric ID is given in the DESCRIPTION field.  For any asset class to be entered in the ASSET.CLASS.PARAMETERfile,
it first has to be defined in the LN.ASSET.CLASS table. The other details that are provided in this table are the provision percentage, the pro-
vision expenses category in the P&L to be debited, the provision reserve category to be credited, whether income is to be recognized and
whether write off is allowed for that particular class. These details are defaulted into ASSET.CLASS.PARAMETER table when this particular
class is entered.

Screen shot of LN.ASSET.CLASS record for Substandard Assets

ASSET.CLASS.PARAMETER
This is the file that describes the criteria for classification of loans into various asset classes. The main aspects dealt with in this file are:

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1. The categories of loans for which provisioning is required (at present only LD and MG categories are allowed).
2. The period of overdues that would render a loan eligible to be classified under a particular asset class. Though provisioning is generally
done for loans that have past dues, some banks are required as per prudential norms to provide against standard assets too. This facil-
ity is also available in the provisioning module.
3. The PD.AMOUNT.TYPEthat would be considered in calculating the number of days overdue. Operands are provided to monitor these
amount types either singly or in combination.
4. The provision percentage for each asset class.
5. The recognition or otherwise, of income from loans falling under each asset class.
6. The P&L category to be used for debiting the provision under each asset class.
7. The internal account for crediting the provision under each asset class.
8. The frequency of provisioning.

A screenshot of the ASSET.CLASS.PARAMETER table is given below:

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ASSET.CLASS.PARAMETER Table

The categories of LD and MG that are to be considered for provisioning are mentioned in the ‘Application’ multivalue. It is possible to define
individual categories and also ranges of categories in the CATEG.FR and CATEG.TO fields. In the example above, for LD, the category 21050
and the category range 21050 to 21056 are to be considered for provisioning. Whatever categories are defined for LD and MG applications need
to be defined for PD also.

Thereafter, the asset classes are to be defined along with the criteria that would make a contract eligible to be placed in that particular asset
class. The criteria are to be mentioned in terms of number of days overdue of any amount type in the PD contract. Provisions may also be made
on assets that do not have overdues. For example, for the asset class STANDARD, the fields AMT.TYPE and DECISION have been left blank.
However, a provision of 5% has been stipulated in the PROV.PERC field. Therefore, assets that do not have any overdues will also be provided
for @ 5%.

It is possible to define complex combinations of these amount types with the DECISION and OPERAND fields. In the screenshot above, a PD
contract with ‘PR’ and ‘IN’ component overdue for a minimum of 1 and a maximum period of 2 days will be classified as a substandard asset
(asset class 2). For example, if a principal payment becomes overdue on January 1 st, the PD contract will not be classified as substandard until
an interest payment also becomes overdue. Say an interest payment falls due on January 10 th , then the contract will be classified as sub-

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standard during close of business (COB) processing on January 10 th, when the condition of both principal and interest being overdue for at
least a day, is met.

The other important information that should be defined with every asset classification is:

1. PROV. PERC – the percentage of provision that is to be applied to the asset at every provision date.
2. PROV.RESV.CATEG – this will contain the internal category to be used for crediting the provision reserve. This category will have to
be defined before the ASSET.CLASS.PARAMETER is set up. An internal account in local currency under the same category will also
need to be opened. For contracts in foreign currencies, the system will open internal accounts in these currencies.
3. PROV.EXP.CATEG – this field will contain the P&L category that should be debited when a provision is made.
4. WRITE.OFF – if the asset needs to be written off completely from the books, this field should be set to ‘YES’. Only the worst asset
class (last multivalue of classification) will allow the value ‘YES’. Once an asset reaches this class, the loan asset will be credited and
the corresponding provision account will be debited.
5. INCOME.RECOG – setting this field to ‘NO’ would result in the contract being marked as a NAB (non-accrual basis) contract. Income
will thereafter be accounted for only on a memo basis. Any income which had been previously recognized will now be reversed. Income
henceforth will be recognized only on a cash basis.

In the final category (WRITE-OFF), no provision percentage should be specified, as the WRITE.OFF field being set to YES means that the asset
will have to be completely written off from the books.

The following points have to be noted while setting up the ASSET.CLASS.PARAMETER table:

For the product categories included in the parameter table, separate PD.PARAMETERrecordsmust exist. The SUSPEND.INCOME field in
SYSTEM record of PD.PARAMETER should have as input, all the applications specified in ASSET.CLASS.PARAMETER (currently LD and
MG).

The REVERSE.PL.AT.NAB field for all the relevant PD.PARAMETER records should be set to ‘YES’.

The fields NAB.PERIOD.INT and NAB.PERIOD.SPREAD will have to be set to ‘NO’, care must be taken when using a range of categories, all
inclusive categories must follow this rule. Once the ASSET.CLASS.PARAMETER table is set up, the status of a contract will move to NAB if
that particular contract falls into an asset class where INCOME.RECOG is set to ‘NO’. For all contracts that belong to categories mentioned in
the ASSET.CLASS.PARAMETER, accrual/non-accrual income will be decided by ASSET.CLASS.PARAMETER and not by PD.PARAMETER.

Once included, a category in ASSET.CLASS.PARAMETER cannot be deleted.

When defining the various asset classes, the best asset class should be defined first and then progressively downwards till the write off class.

Classification is done at individual contract level, and is calculated on the outstanding principal in the contract, both in the PD and the under-
lying contract. Based on the classification in the PD contract, the underlying contract will also be updated with the same asset class. In case of
a customer with multiple loans, there may be a situation where each of these loans has a different classification. In this case, the CUSTOMER
record for that particular customer will be updated with the worst classification amongst all the assets.

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Example of Provisioning

Consider the following contracts input for David Brown Limited:

CONTRACT CCY CATEGORY VAL DT MAT DT AMOUNT

LD0726300001 USD 21053 1-Sep-07 5-Oct-07 1000000

LD0726300002 USD 21053 1-Sep-07 25-Sep-07 1000000

LD0726300003 EUR 21056 1-Sep-07 5-Oct-07 1000000

LD0726300004 USD 21053 1-Sep-07 5-Oct-07 1000000

LD0726300005 EUR 21056 1-Sep-07 5-Oct-07 1000000

MG0726300001 USD 25011 10-Sep-07 6-Dec-07 1000000

MG0726300002 EUR 25012 10-Sep-07 6-Dec-07 1000000

The schedules defined for the contracts are as follows (PI – principal and interest schedules simultaneously):

LD0726300002 LD0726300003 LD0726300004 LD0726300005 MG0726300001 MG0726300002

20-Sep-07 PI -100000 PI -100000 PI -84,462.98

21-Sep-07 PI –100000 PI -100000 PI -84,486.38

22-Sep-07 PI -100000 PI -100000

23-Sep-07 PI –100000 PI -100000

24-Sep-07 PI -100000 PI -100000

25-Sep-07 PI- 700000 PI –800000 PI -100000

26-Sep-07 PI -100000

27-Sep-07 PI -100000 PI -84,462.98

28-Sep-07 PI -100000 PI -84,486.38

With the parameter settings as shown earlier, after a COB is run on September 20 th, the asset classification would look as under:

1.      PI schedules are overdue for LD0726300002, LD0726300003 and MG0726300001.These contracts will be classified as substandard as
they have been overdue for a day and thus satisfy the condition for asset class 2. Therefore a 30% provision has been made on the outstanding
principal in the underlying contract as well as in the PD component. Screen shots of these contracts are given below.

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PI Schedule Contracts

The LD principal outstanding after the PI schedule of 100,000 on September 20 th is 900,000. A 30% provision (270,000) has been made on
900,000 under asset class 2.

PI Schedule Contracts

The PD above has a provision of 30% on the PR component overdue of 100,000. The field PROVISION.METHOD is set to ‘AUTO’, which
indicates that provisioning for this contract will be controlled automatically by the settings in ASSET.CLASS.PARAMETER. This field is user
inputtable and can be set to MANUAL, which will enable the user to revise the asset classification upwards or downward manually. A fuller
explanation follows in the section on MANUAL MAINTENANCE OF ASSET CLASS.

MG Contract

The instalment of 84,462.98 that was paid on September 20 th for MG0726300001 had a principal component of 81,685.2, leaving an out-
standing principal of 918,314.8 in the MG contract. 30% provision on this works out to 275,494.44.

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PDMG Contract

A 30% provision has been made on the PR component of the PDMG contract (81685.2), which works out to 24,505.56.

2.      The contracts LD0726300001, LD0726300004, LD0726300005 and LD0726300002 have no overdues as on September 20 th. There-
fore they have been classified as standard assets. However, a 5% provision has been made for these contracts according to the stipulations in
the ASSET.CLASS.PARAMETER.

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The screen shot below shows the list of internal accounts that have been credited for the various contracts during COB on September 20 th.
Internal account USD –11060-0001 has been used for crediting provisions for standard assets (asset class 1) and USD-11061-00001 for sub-
standard assets (asset class 2). These internal accounts have been specified in ASSET.CLASS.PARAMETER.

The corresponding debits have been shown in the CATEG entry statement (P&L account).

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PL.CATEGORY 51050 has been debited for provision on standard assets (Asset Class 1) and 51051 for substandard assets (Asset Class 2).
These categories have been specified in the ASSET.CLASS.PARAMETER.

The customer record has been updated with the worst asset class of all the contracts belonging to him. In this case, it is Substandard.

Customer Record Asset Class SUBSTANDARD

The following screenshots show the position as on September 24 th (September 22 nd and 23 rd being holidays).  LD0726300002,
LD0726300003 and MG LD726300001 have remained in substandard status for more than 2 days on September 22nd and therefore get clas-
sified as doubtful with effect September 22 nd.  LD0726300004, LD0726300005 and MG0726300002 had PI schedules which became over-
due during COB on September 21 st. These would have been classified as doubtful with effect September 23rd.

LD07266300001 being a bullet contract with no schedules and no overdues, continues to be a standard asset:

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Bullet contract

All the other LD have moved to doubtful status:

LD Contract in Doubtful Status

LD072630002 had another PI schedule of 100,000 move to PD on September 22nd, such that the outstanding amount in the LD is 800,000.
As this contract is now in doubtful status, the provisioning has been done for 600,000(75% of 800,000), as per the settings in
ASSET.CLASS.PARAMETER 

The same is the case with LD072630003:

LD Contract in DOUNTFUL status

LD072630004 and LD072630005 had a PI schedule of 100,000 each moving to PD on September 21 st and 23rd, bringing the outstanding
principal under each of these contracts to 600,000.

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 LD Contracts in DOUBTFUL status

As regards the MG contracts, though MG0726300001 still has only one principal overdue, it has crossed the 2day period for substandard
assets and is classified as doubtful with effect September 22nd. So also, MG0726300002 has a PI schedule which becomes overdue on Septem-
ber 21 st. Therefore this contract also gets classified as doubtful with effect September 23rd.

MG Contract in Doubtful Status

The provision for MG072630001 has been made @ 75% of the outstanding principal of 918,569.18(688,926.10).

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The PD component of the LD and MG contracts are shown below:

Provision = 75% of overdue principal of 200,000 = 150,000

Provision = 75% of overdue principal of 200,000 = 150,000

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Provision = 75% of outstanding principal of 200,000 = 150,000

Provision = 75% of outstanding principal of 200,000 = 150,000

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Provision = 75% of principal overdue of 81,685.2 = 61,263.90

Provision = 75% of principal overdue of  81,430.82 = 61,073.12

The statement entries crediting the provision reserve have been given below:

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In the case of each of the contracts above, when the asset class has changed from substandard to doubtful, the provision made in the sub-
standard provision account (11060) has been debited and credited to the doubtful provision account (11061). Thereafter, the incremental pro-
vision required for the doubtful assets have been credited to 11061.

The categ entries corresponding to the debit statement entries are given below:

The CUSTOMER record has also been updated with the doubtful asset class:

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After running the COB on September 24th, the asset classes of the individual contracts remain the same (September 25 th being the last day for
remaining in DOUBTFUL class). However, in the case of LD0726300002 and LD0726300003, another PI schedule of 100,000 each has
fallen due, decreasing the PR amount outstanding under LD and increasing the PR outstanding under PD. The screenshots look as under:

The provision under each of the above LDs has moved from 600,000 on September 24th to 525,000 on September 25 th. This represents 75%
of the new outstanding amount of 700,000. The screenshots of the related PDs are shown under:

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To reflect the inter-se adjustment of provision between LD and PD, the following statement entries have been passed:

 The internal accounts USD-11062-0001 and EUR-11062-001 have been debited with an amount of 75,000 (previous provision of 600,000
under LD less the current provision of 525,000) with LD transaction reference and credited to the same internal accounts with PD transaction
references.

So also, an adjustment is made in the categ entry between LD and PD.

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During the COB process on September 25 th, the LD contract LD0726300002 matures and the whole principal amount becomes past due. The
PD record for this contract was created on September 20 th. Therefore it reaches the sixth day of past due on September 25 th and thus satisfies
the condition for Write-Off according to the ASSET.CLASS.PARAMETER.

The screenshot of the LD0726300002 contract shows the asset class as Write-off and the Provision Percentage as 100%. However, the pro-
vision amount is shown as zero. This is because the entire principal has become PD and the provisioning is made under the PD contract.

As the provisioning has to be first shifted from LD (which now has nil balance) to the PD, first of all the provisioning that has been made under
LD (525,000) is first reversed out by debiting the internal account USD110620001 and crediting the P&L Category 51052.

Before a write off is done, full provisioning (if it has not been done already) has to be done in the doubtful asset category. For
PDLD0726300002, an amount of 225,000 had been made provided for, previously. Now the remaining 775,000 (1,000,000 – 225,0000)
will have to be provided for in the doubtful category. The statement entry for USD110620001 and the category entry for P&L category 51052
are shown below.

The write off is affected by debiting the provision account USD110620001 and crediting the loan account for 1,000,000. The statement
entries are shown below.

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The RE.CONSOL.SPEC.ENTRY which shows the asset being credited is shown below:

Apart from LD0726300002, LD0726300003 and MG0726300001 also qualify for write-off according to the setting in
ASSET.CLASS.PARAMETER. However these two contracts have not matured (i.e) a portion of outstanding amount is in the LD/MG contract
and the rest in the PD module. Unless the underlying contract has a zero balance, automatic write-off will not be done by the system. Instead it
will raise entries in a file PD.PROV.EXCEPTION.LOG. In such a case, the user will have to manually liquidate the underlying contract com-
pletely and the write off will be done by the system during the subsequent COB.The entries for LD0726300003 and MG0726300001 are
shown below:

Entry LD072600003

Entry PDMG0726300001

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Repayment of written off contracts

Manual repayment of contracts with FWOF status is done by choosing the ‘Repayment’ option in the field OPERATION in the PD contract.
When the repayment amount is entered in TOT.REPAY.AMT, it is apportioned in the order mentioned in the FWOF.RPY.ORDER multivalue
field given in the PD.PARAMETERrecord that appears in the PARAMETER.RECORD field in the PD contract. In the case of
PDLD0726300002 the PD.PARAMETER record shows the order as follows:

PD Parameter Record

An amount of 1,000,000 is repaid on the contract PDLD0726300002. This has been apportioned first towards the interest component (IN)
of 6,416.66 and then principal component (PR) of 993,583.34. The screenshot of the repayment is shown below:

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Repayment

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Reasons for write off
The user may want to record the reasons for writing off a loan when he does it manually. For this purpose, he can define reasons in a table
called PD.WOF.REASONS. The reason can be mentioned in the PD record at the time of manually maintaining the asset class to write-off
status.

Manual maintenance of asset class


Apart from the change of asset classification that happens during COB, the user is given the option to change the asset classification online at
contract level. The fields ASSET.CLASS, PROVISION and PROVISION.METHOD are inputtable fields, both at PD and LD/MG contract level.
For contracts which have a past due component, the change will have to be done first in the PD contract, and then in the underlying LD/MG
contract.

For example, on September 21 st MG0726300001 was a substandard asset with a PD component. It may be decided to downgrade this asset
manually to Doubtful status. In this case, if the manual downgrade is first attempted in the MG contract, the following error message will be
displayed.

Downgrade error message

The above error message shows that as the PDMG0726300001 still has an asset class of Substandard, the asset class in the MG cannot be
changed to Doubtful. Therefore, the asset class has to be changed first in the PDMG contract. This is done by choosing ‘Maintenance’ in the
field OPERATION. Thereafter, the field PROVISION.METHOD has to be set to ‘MANUAL’. Now the user can effect the desired change:

Set the Provision Method field to MANUAL

In the above PD contract, the ASSET.CLASS has been changed to 3 (Doubtful). The PROVISION has also been changed to 90%. The
PROVISION.AMOUNT has been changed online to 73,516.68 from 24,505.56 earlier. The WOF.REASON has been given as ‘3’ which in the
PD.WOF.REASONStablehas been defined as ‘Industry in Negative List’

The statement entries and P& L entries are shown below. As the class of the asset has changed, the earlier entries that were passed for the pre-
vious class need to be reversed. The statement entries show that for PDMG0726300001 the previous credit to USD-11061-0001 (the internal
account for substandard assets) has been debited with 24,505.56 and USD-11062-0001 (internal account for doubtful assets) has been cred-
ited with 24,505.56. Similarly, the P&L category for substandard assets (51051) has been credited with 24,505.56, and the P&L category for

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doubtful assets (51052) has been debited with 24,505.56. Thereafter, provision has been created for the incremental amount of 49011.12
(73516.68 – 24505.56) by debiting category 51052 and crediting internal account USD-11062-0001.

After the asset class has been changed, in the PD, the asset class can be changed to the same in the underlying MG contract. If it is not done
online by the user, it will be done during COB by the system. In this particular case, the asset class in MG0726300001 has been changed to
Doubtful and provision has been made at 90% of the underlying MG amount of 918314.8.#

Changes asset class in MG contract

Balances files
LN.PROV.BALANCESis a table maintained by the system which contract-wise provisioning for every customer. The following screenshots
show the table on September 21 st and September 24th for the customer David Brown Limited.

LN.PROV.BALANCES as on September 21 st:

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LN.PROV.BALANCES as on September 24th

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LN.PROV.BALANCES.DETAILSis a table maintained by the system that shows the movement of an asset from one asset class to another. The
screenshot below shows the status of LD0726300002 for which a provision of 270,000 was made on September 20 th, when the asset was
classified as Substandard. On September 21 st, the asset became Doubtful as a result of which 75% of the outstanding principal balance of
800,000 had to be provided for. Hence, an extra amount of 330,000 has been provided, bringing the total to 600,000.

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LN.PROV.BALANCES DETAILS table

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Past Due Processing Accounting

l Income Recognition
l Accounting for Provisioning
l Accounting for financial Write-off

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Income Recognition

For contracts with product category defined in ASSET.CLASS.PARAMETER, decision on whether income should be recognized or not would
be governed by settings in ASSET.CLASS.PARAMETER.  For such contracts, once the asset class has been determined by the system, income
recognition would be depend on the setting of the INCOME.RECOG field for that particular asset class. The allowed values in this field are YES
(continue recognition of income) or NO (stop recognition of income). For such contracts when PD is created POST.END.DATE in
PD.BALANCESwould be left NULL. When the contract reaches an asset class for which income should not be recognized (INCOME.RECOG =
NO), system would update the record status to NAB. The parent LD or MG contract status would also be updated as NAB, which would trig-
ger suspension of income (memo accruals) for both PD and parent LD or MG contract. Any accrual of income that had taken place thus far
would also be reversed out. 

Let us say that an LD contract with a PD has moved from accrual to non-accrual basis based on the setting in ASSET.CLASS.PARAMETER.
The PD contract has OVERDUEIN (overdue interest) and OVERDUEPR (overdue principal) components. Assume that LD accrues income
under the category 51001 and the PD accrues income (penal interest) under category 51000. The accounting entries that would take place on
suspension of income would be as follows:

Reversal entries for income


Dr P&L Category 51001 (amount of OVERDUEIN)
CRPD…51001SP (consol key for reversal of interest accrued and overdue)

DrP&L Category 51001 (amount of accrual under the LD for the current interest period to date)
CrLD….51001SP (consol key for suspension of income under LD)

DrP&L Category 51000 (penal interest accrued to date)


CrPD….510000SP (consol key for suspension of income under PD)

Memo entries to be passed for subsequent accruals after reaching NAB status

DrLD….51001 (consol key for accrual of income under LD)


CrLD….51001SP (consol key for suspension of income under LD)

DrPD….51000 (consol key for accrual of penal interest under PD)


CrPD….51000SP (consol key for suspension of  penal interest under PD)

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Accounting for Provisioning

The provision amount required would be calculated by the system for each contract after the asset class is determined.

Provisioning entries would be passed only for the incremental amount if the required provision is higher (and the asset continues to have the
same asset class as of the previous review). If the required provision were lower than the amount already provided for, there would be a write-
back of provision.

The provision entries would be as under:

First review date

DrP/L Category for provision expense (indicated in ASSET.CLASS.PARAMETERfor the asset class).
CrInternal account for provision reserve (category indicated in ASSET.CLASS.PARAMETERfor the asset
class). For foreign currency loans system would automatically create internal accounts in the currency
required.

Subsequent Review Date

If provision required is more than the amount so far provided, entries would be passed for an incremental amount i.e. difference between the
provision now required and that provided so far

Dr P/L Category for provision expense (indicated in ASSET.CLASS.PARAMETERfor the asset class).
CrInternal account for provision reserve (category indicated in ASSET.CLASS.PARAMETERfor the asset
class). For foreign currency loans system would automatically create internal accounts in the currency
required.

If provision required is less than the amount so far provided

DrInternal account for provision reserve (category indicated in ASSET.CLASS.PARAMETERfor the asset
class). Transaction code would be write-back.
CrP/L Category for provision expense (indicated in ASSET.CLASS.PARAMETER for the asset class).
Transaction code would be write-back.

When an asset moves from one asset class to another, the entries passed for the previous asset class will be passed into the new asset class,
and then incremental entries for the new asset class are passed.  Take for example, an asset that was Substandard with ‘X’ amount of provision
having been made.  To this asset now moves to Doubtful asset class with amount ‘Y’ provision to be made, ‘Y’ being more than ‘X’. Then the fol-
lowing entries would be passed

Internal account for provision reserve (category indicated in ASSET.CLASS.PARAMETERfor substandard asset class), for amount ‘X’.
Dr
CrInternal account for provision reserve (category indicated in ASSET.CLASS.PARAMETERfordoubtful asset class), for amount ‘X’.

DrP/L category for provision expense (category indicated in ASSET.CLASS.PARAMETERfor doubtful asset class), for amount ‘X’.
CrP/L category for provision expense(category indicated in ASSET.CLASS.PARAMETERfor substandard asset class), for amount ‘X’.

DrP&L category for provision expense (category indicated in ASSET.CLASS.PARAMETERfordoubtful asset class), for amount ‘X-Y’.
CrInternal account for provision reserve (category indicated in ASSET.CLASS.PARAMETERfor doubtful asset class), for amount ‘X-Y’.

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Accounting for financial Write-off

In case a loan is financially written off for which 100% provision has been made, accounting would be as under:

Dr Internal account for provision indicated in ASSET.CLASS.PARAMETER. The asset class would be the
one prior to Write off class.
CrLoan Asset Account

In case a loan is written for which 100% provision has not been made, accounting would be as under:

DrP/L Category for provision expense (indicated in ASSET.CLASS.PARAMETERforthe asset class prior
to write off)

The amount for which entry would be raised would be equal to the difference between the loan
amounts outstanding and provision made so far.
CrInternal account for provision indicated in ASSET.CLASS.PARAMETER. The asset class would be the
one prior to Write off class. The amount for which entry would be raised would be equal to the extent
of provision made so far
DrInternal account for provision indicated in ASSET.CLASS.PARAMETER. The asset class would be the
one prior to Write off class. The amount for which entry would be raised would be equal to entire loan
outstanding.
CrLoan Asset account for the entire loan outstanding

If income were not being recognised prior to financial write off, then all memo accruals held in the system would also be reversed out.  If
income were recognised prior to financial write off then accrual entries posted with respect to PE and PS would be reversed out. IN component
that had moved to PD would be written off into WOF category indicated in PD.PARAMETER.

Effectively, after financial write off there would be no evidence of transaction in the books of accounts except that information on outstanding
balance would be held in the system for collection purpose.

When amounts are recovered against a loan that is financially written off, the accounting would be as under:

Dr Repayment Account as indicated in PD contract


Cr P/L category indicated in ASSET.CLASS.PARAMETERforthe asset class prior to write off.

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Past Due Processing Enquiries and Reports

Enquiries
The enquiry CUSTOMER.PROVISION gives customer-wise provision details. The details are given grouped according to currency and show the
outstanding principal under individual contracts, the asset class, percentage provision and the provision amount per contract. Given below is
an example:

Reports

Position Management
To activate the Position Management (PM) interface for PD refer to the PM section of the User Guide.

The definition of which PD data is used in Position Management enquiries takes place using the standard PM tables, namely
PM.POSN.REFERENCEand PM.ENQ.PARAMas described in the Position Management section.

The following tables for PD need to be in place:

PD.AMOUNT.TYPE
The field PM.TYPE defines a generic position type for each amount type.

Input is optional as not all accounting activities update PM, for example accruals that take place during Close of Business and will be absorbed
into PM via the ACCOUNT balances.

To update PM the POSN.TYPE field of the PD record of PM.PC.PARAMmust also be set up with the same value.

The possibility exists to group different amount types by defining the same PM.TYPE or to split them. For example the different interest types
could be grouped together.

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PM.POSN.TYPE
Defines a series of generic 3 character position types. This table is currently only used for the PD module but is intended to be more widely
used as new modules have interfaces to PM developed. An example of a position type would be PAM, Principal at maturity. The position class
generated for PD would be PDPAM.

PM.PC.PARAM
Defines which of the generic position types are applicable to a module. There will be one record per module (currently PD).

If the type is not defined here then no update to PM will take place.

Each position type defined can have an associated character that is used to identify any ACCOUNT related movements that are generated.

PM.PC.PARAMETER Record

In this case the accounts related position class generated for PAMwould be PDxxM where xx depends on the set up of PM.AC.PARAM.

Reporting

RE.STAT.REP.LINE
It is possible to define consolidation parameters independently for past dues. For this purpose, CONSOLIDATE.COND will recognize
PD.PAYMENT.DUE as a valid application. This will enable the user to pick up components from the PD template to form part of the consol
key as in any other application. As and when these components undergo changes, the PD key would get re-generated with the new values.

Lines may be set up to show movements from current to overdue status, where a grace period or overdue penalty charges may be accrued, and
also to show movements to Non-Accruals. These lines can be further broken down into the constituent parts of a PD to show movements of
Principal, Interest, Charges, Commission, Tax and Mortgage Additional Payments where appropriate.

Example 1: Producing CRB entries showing full PD amounts

To set up a line to show the total PD's, for example all movements in overdue status, a record in application RE.STAT.REP.LINE must be set
up, where the ASSET.APPLIC.ID is set to PD and the ASSET.TYPE is set to OVERDUEDB.

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RE.STAT.REP.LINE

With this set up the RE.STAT.LINE.BAL record should catch all the movements to PD. This produces a file on the RE.STAT.LINE.BAL record.

Example 2: Producing CRB entries showing PD amounts broken down into constituent parts.

To instruct T24 to divide PD amounts by constituent parts at CRB, field CRF.BY.TYPE should be flagged to ‘yes’. Once this has been done,
an RE.STAT.REP.LINE recordmust be set up, with the ASSET.APPLIC.ID set to PD.  In field ASSET.TYPE, the field can be set up to
OVERDUEXX where XX can be one of the following:

PD Component Parts

With these lines set up, and the flag in PD.PARAMETER, CRF.BY.TYPE set to Y; the component parts of PD should be separated out in sep-
arate lines.

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Past Due Processing Delivery

Chaser advices may be produced at regular intervals:

•         On any status change, as defined in PD.PARAMETER

•          On a frequency defined in PD.PAYMENT due, operation SCHEDULE

•          On a regular frequency based on RA type schedule.

•          On a frequency with different advices (first reminder, second reminder, etc) with different charges for the advices.

•          On different frequencies for different customer groups as defined in PD.PAYMENT.DUE record of APPL.GEN.CONDITION.

•          Advices may also be suppressed depending on the total overdue amount being less than the parameter amount.

PD.ACTIVITY
This file is used to control the output of delivery messages. A number of different activity types may be defined on PD.PARAMETER according
to the new status of the payment. In addition there is another type of activity that is used when a chaser is scheduled. This type is 110 for
Chaser advices.

The file allows a simple description to be input for system enrichment purposes as well as a handoff routine to produce additional information.

PD.ADVICES
This file controls the output of delivery messages for an activity defined on the PD.ACTIVITY file. The file Ids is constructed from the activity
type and optionally the product code and the CATEGORYcode, e.g. 110, 110-MM or 110-MM-21050.

A charge may be levied on a PD advice.  A PD advice can be linked to another defined PD advice and it also allows the user to define multiple
message types, print formats and deal slips.

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Past Due Processing - User Guide - R16 AMR - Page 73 of 79
Past Due Processing Limits

An important feature of the Past Due processing will be to ensure that the system reflects that there is still an overdue amount present. Where
a LIMIT is defined as non-reducing, and repayment of principal is made, the LIMIT system would normally re-instate the available amount. In
the cases where manual payment is requested, the LIMIT system must not increase the available amount until the payment is received.

To process this situation correctly, the system is amended to allow the LIMIT system to bypass the available amount increase for non-reducing
LIMIT records. The PD application will then update the available amount as and when payments are received.

The overdue principal amount is recorded separately in the LIMIT system. By using the LIMIT.PARAMETERand LIMIT.REFERENCEapplic-
ations, a separate reference can be allocated for overdue items for ease of reporting the exposure to such items. Alternately, the original
LIMIT.REFERENCE can be defaulted.

Limit Update Events


l Receipt of Principal – The outstanding amount is reduced by the amount received
l Reduction of Principal – The outstanding amount is reduced by the reduction
l Write off of contract - The outstanding amount is reduced to zero

By setting the field IMPACT.LIMIT in PD.PARAMETERto YES, the customer’s limit will be hit by all overdue amounts (besides principal) that
flow from the parent application like overdue interest, charges, commission etc. However, amounts accruing on the PD contract like penal
interest and spread will not affect limits. If this field is set to NULL, the customer’s limit would be updated only by the limit update events men-
tioned above.

Note on Reducing Limits


It should be noted that the PD contract normally adopts the LIMIT used by the underlying application. However, there are certain situations
where this is not desirable. For example if the underlying contract were a Loan that was linked to a reducing Limit, it would be incorrect to re-
instate the Limit when the overdue amount is passed to PD.

Under these circumstances an information LIMIT will be used. However, it is possible to change the LIMIT by using the MAINTENANCE
option in PD.PAYMENT.DUE.

Note on Accounts
For account PD, there would be no link to limits.

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Past Due Processing Services

Close of Business Services


The T24 Past Due module includes Close of Business procedures, which will process all the PD contracts, which are still overdue.

If NS (Non Stop Processing) is installed for PD, input and processing of new contracts are allowed, provided they are not forward dated, i.e.,
any amendments or manipulation of old contracts as well as input of forward contracts are rejected.

The Close of Business process includes:

•          Processing of unauthorised contracts

•          Processing of any schedules due

•          Performance of penalty interest accruals

•          Writing liquidated contracts to history

•          Processing of any static changes

•          Semi automatic payments processing

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PD.END.OF.DAY Batch Entry Screen

Automatic Pay-off of PD

Capture Payment
Automatic pay-off of PD on-line can now be handled. The THEIR.REFERENCE field in the statement entry triggers this.

When there is a credit entry for an account and the THEIR.REFERENCE field has been populated with the account number or the contract
number, then the account to which the credit is being made is checked against the repayment account.

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If yes, then the PD.ONLINE.PAYMENT file gets updated with the relevant details from the entry along with the account number to which the
credit is going. This happens when the entry is unauthorised. During the authorisation of the credit transaction, if there are no on-balance
sheet items in the PD, the PD gets repaid for the credit amount.

If the PD contains any on-balance sheet item, during the input stage itself, the account to which the credit goes is changed to a suspense
account which is defined in the PDREPAY record in ACCOUNT.CLASS file.

Deletions and reversals of that particular entry that have the details updated in the PD.ONLINE.PAYMENT file are only updated. For those
PDs that have got repaid on-line, would not be updated when the entry gets reversed. A PD.CAPTURE is the solution for bringing back the PD.

Processing Payments
During the Close of Business, if there were PD.ONLINE.PAYMENT records, they would be read and processed. A single
PD.ONLINE.PAYMENT file might contain multiple sets of payments to be processed. They are processed in order of their value dates and
settled taken into account the REPAYMENT.ORDER set-up in the respective parameter record.

After the settling the PD if any funds are available in the PD.ONLINE.PAYMENT file, the amount is paid back to the original account, which
has been recorded in the online payment file.

Overdue Overdrafts
Accounts that are overdrawn can also be linked to PD. This is controlled by the category ranges specified in the ‘AC’ parameter table and also
by the number of days from when the account has gone overdrawn should be reported as Overdue. The PD created would be a contingent PD
with the amount type as ‘CB’ meaning contingent Balance.

All accounts that are attached to limit or not; when overdrawn, could be taken to PD. In a simple unauthorised overdraft, the PD gets created
for the account that has been overdrawn with the ID as PDACXXXXX where XXXXX is the account number. The amount taken into PD is the
overdrawn amount in this case.

For the multiple accounts that are attached to limit, which exceed the limit either individually or together can also be linked to PD. In that
case, PDs are created for those accounts in that group that has a debit balance. The amount that is taken into PD as CB amount is the debit
balance and not the excess amount.

When the account goes to a credit balance; or if their limit is increased and as a result of which the account is no more overdrawn, the PD also
gets cleared. This is handled as a repayment of the overdue amount in PD.

When the overdrawn amount increases due to some reason, then the PD associated would get updated with the relevant amount.

Past Due Tables

PD.BALANCES
The PD.BALANCESfile is used to record all the financial movement and balance details with the PD module and is the main calculation base
for the penalty accruals. It is keyed by contract number and due date e.g. PDLD9603100059-19960331.

This file is a type L (live) file and does not allow any user updates.

The corresponding save file PD.BALANCES.SAVE and the history file PD.BALANCES.HIST are copies of the data held in the PD.BALANCES
file in various stages. The save file stores the last authorised version of the balances record, whereas the history file is updated with the data
held in the PD.BALANCES file when that particular record has been fully processed, as in all outstanding amounts repaid or if the whole record
is written off.

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PD Contract Balances Screen. 

PD.RATES
This file, PD.RATES is used to keep track of the penalty rate and spread changes that may take place over the lifetime of a PD contract. Each
time a rate or spread change is made using the SCHEDULE operation on the PD.PAYMENT.DUEfile, then this file is updated with the new
value. It is a type L (live) file and does not allow any user updates. 

The key to the file is the PD.PAYMENT.DUE contract ID

There is a corresponding save file PD.RATES.SAVE that stores the last authorised version of the PD.RATES file.

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 PD.RATES Record

PD.REPAYMENT
The PD.REPAYMENTfile is used to store all the repayment details for a PD contract. It is needed due to the fact that all the repayment details
are cleared from the PD.PAYMENT.DUE contract once it is processed.

It is a type L (live) file and does not allow any user updates.

The key to the file is the PD.PAYMENT.DUEcontract ID, repayment date and the sequence number within the repayment date in case there is
more than one repayment on a given date. An example key would be PDMG/00311/00002-20001222-001.

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