Automatic Deposit Rate Change
Overview
The deposit interest rate is earned by a borrower while making an additional payment toward the loan account or while depositing money into the virtual deposit account.
With CL Loan, the lenders can modify the interest rate for a loan. The change in interest rate results in the recalculation of the deposit interest rate. So far, this change was being done manually. But with the Lithium release, the deposit interest rate can be configured to change automatically with the change in the interest rate of the loan.
Key Concepts
Change in the Interest Rate
-
The deposit rate is changed by the same percentage as the loan interest rate.
Note: To learn more about this, see Example > Scenario 1 and Scenario 2, explained later.
OLTs of the types, Rate Change and Deposit Adjustment Transaction are created.
Difference in the Deposit Rate and the Interest Rate
-
The difference between the loan interest rate and the deposit interest rate remains the same throughout the loan contract. The only exception to this is when a reduction in the loan interest rate to a certain value can in turn make the deposit interest rate negative. In such a scenario, the system defaults the deposit interest rate to 0.
Note: To understand this scenario better, see Example > Scenario 3, explained later.
Reversal of the Interest Rate Change
-
The change in the deposit rate is reversed and is updated to the immediate last interest rate.
Note: To learn more about this, see Example > Scenario 4, explained later.
OLTs of the types, Rate Change Reversal and Deposit Adjustment Transaction are created.
Enable Automatic Deposit Rate Change
To enable the automatic change in the deposit interest rate as the loan interest rate is changed or reversed, the Auto Change Deposit Rate flag needs to be enabled while performing the following actions:
- Creating a Contract
- Editing a Contract
- Editing a Lending Product
While Creating a Contract
Prerequisites
The following is the prerequisite to enable the Auto Change Deposit Rate flag while creating a contract:
- A lending product with the Payment Application Mode as Deposit is created.
Steps
Perform the following steps to enable the Auto Change Deposit Rate flag while creating a contract:
- Log in to your Salesforce account.
- Click the App Launcher
.
- Search for CL Loan, and then click it.
- Go to CL Contracts > New.
- Select the mentioned product type, and in the Additional Parameters section, select the Auto Change Deposit Rate checkbox.
- Specify the other required details, and then click Save.
While Editing a Contract
Prerequisites
The following is the prerequisite to enable the Auto Change Deposit Rate flag while editing a contract:
- A loan product with the Payment Application Mode as Deposit is created.
Steps
Perform the following steps to enable the Auto Change Deposit Rate flag while editing a contract:
Log in to your Salesforce account.
Click the App Launcher
Search for CL Loan, and then click it.
Click the CL Contracts tab, and then from the list of contracts, select the required CL contract ID.
On the CL Contract page, click Edit Additional Parameters.
-
In the Additional Parameters section, select the Auto Change Deposit Rate checkbox, and then click Save.
While Editing a Lending Product
Prerequisites
The following is the prerequisite to enable the Auto Change Deposit Rate flag while editing a loan product:
- A loan product with the Payment Application Mode as Deposit is created.
Steps
Perform the following steps to enable the Auto Change Deposit Rate flag while editing a loan product:
Log in to your Salesforce account.
Click the App Launcher
Search for CL Loan, and then click it.
Go to Lending Products > View/Edit Lending Products > LOAN PRODUCT , and then click Edit Additional Parameters.
-
In the Additional Parameters section, select the Auto Change Deposit Rate check box, and then click Save.
Example
Let's assume that a contract is created with the following terms and conditions:
| Loan Amount | $4,000 | |
| Loan Disbursal date | 3/1/2015 | |
| Deposit Amount | 0 | |
| Loan Interest Rate | 10% | |
| Deposit Interest Rate | 5% | |
| EMI Payment Date | 4/1/2015 | |
|
Interest Rate Difference (Loan Interest Rate - Deposit Interest Rate) |
5% |
Scenario 1
The loan interest rate is increased from 10% to 15%.
New Deposit Interest Rate = (Current Deposit Interest Rate + Difference of (New Loan Interest Rate and Current Loan Interest Rate))%.
= (5+(15-10))% = 10%.
Interest Rate Difference = (New Loan Interest Rate - New Deposit Interest Rate)%.
= 15% - 10% = 5%.
| Action | Result |
|---|---|
Change the loan interest rate to 15%. |
1. The deposit interest rate is changed to 10%. |
| 2. Two OLTs are created. | |
Scenario 2
The loan interest rate is decreased from 15% to 9%.
As per the formula mentioned in Scenario 1, the new deposit interest rate = (10+(9-15))% = 4%.
Interest rate difference = 9% - 4% = 5%.
| Action | Result |
|---|---|
Change the loan interest rate to 9%. |
1. The deposit interest rate is changed to 4%. |
| 2. Two OLTs are created. |
Scenario 3
The loan interest rate is decreased from 9% to 4%.
As per the formula mentioned in Scenario 1, the new deposit interest rate = (4+(4-9))% = -1%.
Interest rate difference = 4% - 0 = 4%.
| Action | Result |
|---|---|
Change the loan interest rate to 4%. |
1. The deposit interest rate is changed to -1%. Note: In such a scenario, the deposit interest rate is set to 0. |
| 2. Two OLTs are created. |
Scenario 4
The loan interest rate of Scenario 3 is reversed.
As per the reversal logic, the new loan interest rate = 9%.
New deposit interest rate = 4%.
Interest rate difference = 9% - 4%= 5%.
| Action | Result |
|---|---|
Reverse the loan interest rate at 9%. |
1. The deposit interest rate is reversed to 4%. |
| 2. Two OLTs are created. | |