Automatic Interest Adjustment for Backdated Transactions

When a backdated transaction is made in the system, the system calculates the difference between the interest that would have been calculated if the backdated transaction had been made on that backdated date and the interest actually calculated before the backdated transaction, and then stores this difference in a field and automatically adjusts it in the next cycle. The difference gets adjusted against the next interest posting transaction for IPT-enabled loans and against the Interest Remaining for non-IPT-enabled loans.

In other words, when you make a backdated payment, internally, the system assumes the payment to have been actually made on that backdated transaction date and then calculates and adjusts the interest as per the events following that date to arrive at the total interest amount that would have been paid if the payment was made on that date.

Thus, the adjusted interest is nothing but the difference BETWEEN "The actual total interest accrued and paid from the backdated date till the system date" AND "The interest that would have got accrued and paid if the payment would have been made on that desired date". This amount is basically the extra interest that has been collected from the borrower and it is automatically reduced from the interest amount posted in the next cycle.

For example, let us say today is March 2 and interest gets posted monthly on the first of every month. Let us say that the interest for the period from February 1 to March 1 is posted on March 1. So the LAD changes to March 1. The system calculates the interest for this period on the February 1 closing balance. Now let us say that you are making a backdated payment today for February 15. This would be a backdated payment before LAD. If you are making a backdated payment, then the interest after the backdated payment date, February 15, must be calculated on the reduced principal to arrive at an accurate interest due amount. But you have already paid the interest till March 1.

So, the system now calculates the interest after a backdated payment as follows:

1. The system considers the February 1 closing balance to calculate interest from February 1 to February 15.
2. Then the system reduces the principal amount paid from the February 1 closing balance and considers that reduced amount to calculate the interest on from February 15 to March 1.
3. It then adds these two interests to calculate the total interest after a backdated payment.
4. The difference between the total interest calculated on the original balance and total the interest calculated considering the reduced balance is stored in a field and then that interest value is adjusted in the interest of the next IPT.

Adjusted interest amount in case of a backdated payment:
Interest amount adjusted = (the interest amount actually due today that the borrower has already paid) - (the interest amount that would have been due today if the payment was made on the backdated payment date).

Adjusted interest amount in case of a backdated payment reversal:
Interest amount adjusted = (the interest amount due today that the borrower has already paid) - (the interest amount that would have been due today if the payment was made on the backdated payment date) + interest paid by the reversed LPT.

Thus, you can create backdated transactions whose transaction dates are prior to any existing transactions. This means that you can make a backdated payment or a perform a backdated payment reversal without reversing and reapplying the older transactions.

Let us look at the details of automatic interest adjustment for backdated transactions for the following types of loans:

• IPT-enabled loans

• Non IPT-enabled loans

Enhancements made to adjustment entry (Interest Adjustment) calculations as a part of December 2023 (4.4001.59) patch

Automatic interest adjustment (adjustment entry) for backdated rate change

Enhancement Description

Earlier, the system supported automatic interest adjustment for backdated transactions such as backdated payments, backdated payment reversals, and backdated interest waivers.

As part of this patch, the system supports automatic interest adjustment for backdated rate change as well.

This means that you can now perform a backdated rate change before an LAD.

This enhancement can be availed by making a backdated rate change via the RateChange page that can be accessed by going to Loan Quick Menu > Loan Actions > Rate Change.

If a contract has a floating rate attached to it, and when the system encounters the date of floating rate revision, FloatingRateInterestRevisionJob job runs automatically. If this job fails dues to any reason, then the floating rate revision does not take place. In such scenarios, on the next day, when this job runs as part of the SOD, the floating rate gets changed using automatic interest adjustment (adjustment entry).

(Note: When there is a floating rate in the contract, then the interest rate changed using the UI is not honored. To change the floating rate, you must add it in the floating rate schedule for the required date.)

Automatic interest adjustment (adjustment entry) for backdated rate change reversal

Enhancement Description

Earlier, the system supported automatic interest adjustment for backdated transactions such as backdated payments, backdated payment reversals, and backdated interest waivers.

As part of this patch, the system supports automatic interest adjustment for backdated rate change reversals as well, as long as the reversal occurs as the final LAD event on the loan. However if you want to reverse a rate change before any other LAD event on the loan, then you must do so by providing the previous interest rate on the intended back date.

Automatic interest adjustment (adjustment entry) for backdated disbursement and backdated principal adjustment

Enhancement Description

Earlier, the system supported automatic interest adjustment (Adjustment Entry) for backdated transactions such as backdated payments, backdated payment reversals, and backdated interest waivers.

As part of this patch release, the system supports the automatic interest adjustment for backdated disbursements and backdated principal adjustments as well.

This means that you can now do a backdated disbursement or backdated principal adjustment before an LAD.

This enhancement can be availed by making a backdated disbursement or a backdated principal adjustment via the UI.

Automatic interest adjustment (adjustment entry) for backdated disbursement reversal

Enhancement Description

Earlier, the system supported automatic interest adjustment (Adjustment Entry) for backdated transactions such as backdated payments, backdated payment reversals, and backdated interest waivers.

As part of this patch release, the system supports the automatic interest adjustment for backdated disbursement reversals as well.

What this means is that, earlier, before this enhancement, you could reverse the disbursal transaction only if the disbursal was the final LAD event in the contract. The system did not allow you to reverse a disbursal transaction that was done before any other LAD event. As part of this enhancement, the system allows you to reverse the disbursal transaction that occurred before any LAD event except the first disbursal done on the loan. You can reverse the first disbursal on the loan only if there is no other LAD event on the loan. You cannot reverse a disbursal if the Principal Remaining on the loan is smaller than the disbursal transaction the user wants to reverse. After a disbursement reversal, the system archives all the existing repayment schedules and generates a new one. Reversal of Principal Adjustment Add also behaves in the same way as disbursal reversal.