Interest Capitalization Posting on Business Days only
What is this and Why is this required?
It is a standard practice in some of the commercial lending markets to post interest capitalizations only on business days. So if the capitalization is enabled in a loan and if the interest posting date falls on a non-working day, the system must move it to post it on a previous or the next working day.
For example, in a capitalization-enabled loan, say the holiday treatment is defined such that the interest posting date is to be moved to a previous date (Schedule Adjustment Method = Before) in case of a holiday and the interest posting frequency is monthly with the due date on every month as 25. Let us say that for a particular month, the 25th day turns out to be a holiday. In this case, the system should automatically post the interest on the immediate previous working day, which can be the 24th or the 23rd whichever is a working day.
To incorporate such a requirement, with the Platinum patch (3.6019.115) release, the Q2 Loan Servicing has been enhanced to post the interest capitalizations on business days only. This can be done by configuring the Holiday Treatment Setup for the Interest Capitalization Posting. This enhancement includes the postings of the additional interest capitalization of Master Facility loans too to occur on business days only.
For more information on configuring Holiday Treatment Setup for an available parameter such as the Interest Capitalization Posting, see the Holiday Treatment > Holiday Treatment Setup section of this guide.
From the Platinum patch (3.6019.115) release and before the Summer'22 release
Before the Platinum patch (3.2019.115) release of Q2 Loan Servicing, the system was not posting the regular interest and additional interest capitalization on business days when they were falling on a holiday if the regular interest and additional interest frequencies were Billing Frequency.
With the Platinum patch (3.2019.115) release, if the Holiday Treatment Setup is configured for Interest Capitalization Posting, the system is posting the interest capitalization for regular and additional interest on business days for all frequencies when both the regular interest and additional interest are posted at the same frequency.
This means that if the Holiday Treatment Setup is not configured for the Interest Capitalization Posting, then even if there are Business Hours applied to the loan, the Next Interest Posting Date will not be updated to a working day if it falls on a holiday when interest and the additional interest are posted at the Billing Frequency.
While upgrading to the latest Platinum patch, you will have to add the Interest Posting Capitalization picklist value to the picklist field. For more information on the steps, see the Add Floating Rate Revision and Interest Capitalization Posting section in the Latest Oxygen patch (3.5054.xx) to the latest Platinum patch (3.6019.113) > Add Picklist Values section of the Q2 Product Upgrade Guide for Q2 Loan Servicing and Marketplace.
For releases before the Summer'22 release and from the Platinum patch (3.6019.115) release
In the releases before the Summer'22 release and from the Platinum patch (3.6019.115) release, only if the regular interest and the additional interest posting frequencies are the same and Holiday Treatment Setup is configured for the Interest Capitalization Posting, the system will post the interest capitalizations for both regular and additional interest on business days at all frequencies.
What this means is that, for a capitalization-enabled loan, even when the Holiday Treatment Setup is configured for the Interest Capitalization Posting, if the regular loan interest posting is monthly and the additional interest posting frequency is quarterly, then the system will not apply the holiday treatment to the interest postings, which means that the system will not post the regular interest and additional interest on a business day if their posting dates fall on a holiday. In such cases, the system will throw an error message saying, "Allowed for same frequency of Loan and AIC with Holiday Treatment enabled."
However, for a capitalization-enabled loan, when the Holiday Treatment Setup is configured for the Interest Capitalization Posting, if the regular interest posting frequency is monthly and the additional interest posting frequency is also monthly, then the system will successfully apply the holiday treatment to both the interest postings, which means that the system will post the regular interest and additional interest on a business day if their posting dates fall on a holiday.
Example: For releases before the Summer'22 release and from the Platinum patch (3.6019.115) release
This section explains the following table with scenarios on how the interest posting dates are shifted when they fall on a holiday for a loan where capitalization is enabled and where the Holiday Treatment Setup is configured for Interest Capitalization Posting.
| Next Interest Posting Date | Regular Interest Posting Frequency | Additional Interest Posting Frequency | Holiday Treatment Setup configured for Interest Capitalization Posting? | Move Across Months | Schedule Adjustment Method | New Next Interest Posting Date |
|---|---|---|---|---|---|---|
| March 5, 2022 (Saturday) | Monthly | Monthly | Yes | True | After | March 7, 2022 (Monday) |
| March 5, 2022 (Saturday) | Monthly | Monthly | Yes | True | Before | March 4, 2022 (Friday) |
| March 5, 2022 (Saturday) | Monthly | Quarterly | Yes | True | After |
March 5, 2022 (Saturday)
Note:
The date is not moved as the regular and additional interest posting frequencies are not the same. |
| March 5, 2022 (Saturday) | Billing | Billing | Yes | True | After |
March 7, 2022 (Monday)
Note:
The system moves the date to a business date because the Holiday Treatment Setup is configured for Interest Capitalization Posting and the posting frequency of both the regular and additional interest is Billing Frequency. |
| March 5, 2022 (Saturday) | Billing | Billing | No | True | After |
March 5, 2022 (Saturday)
Note:
The system does not move the date to a working day as the Holiday Treatment Setup is not configured for Interest Capitalization Posting even when both the regular and additional interest frequencies are Billing Frequency. |
From the Summer'22 release
With the Summer'22 release, the system is posting the interest capitalization for regular and additional interest on business days for all frequencies if the Holiday Treatment Setup is configured for Interest Capitalization Posting. This means that for a capitalization-enabled loan when the Holiday Treatment Setup is configured for the Interest Capitalization Posting, for any regular loan interest posting frequency and any additional interest posting frequency, the system will apply the holiday treatment to the interest postings, which means that the system will post the regular interest and additional interest on a business day if their posting dates fall on a holiday irrespective of their frequencies.
Example: From the Summer'22 release
This section explains the following table with scenarios on how the interest posting dates are shifted when they fall on a holiday for a loan where capitalization is enabled and where the Holiday Treatment Setup is configured for Interest Capitalization Posting.
| Next Interest Posting Date | Holiday Treatment Setup configured for Interest Capitalization Posting? | Move Across Months | Schedule Adjustment Method | New Next Interest Posting Date |
|---|---|---|---|---|
| March 5, 2022 (Saturday) | Yes | True | After | March 7, 2022 (Monday) |
| March 5, 2022 (Saturday) | Yes | True | Before | March 4, 2022 (Friday) |
What are the parameters that are impacted when Holiday Treatment Setup is configured for the Interest Capitalization Posting?
The following are impacted when the Holiday Treatment Setup is configured for the Interest Capitalization Posting:
Next Interest Posting Date: In FIT and non-FIT loans, on disbursal, the Next Interest Posting Date gets updated to a working day as per the Holiday Treatment Setup configured for the Interest Capitalization Posting.
Rescheduling: If a loan is rescheduled to change the Due Date, then the Next Interest Posting Date for both regular and additional interest is moved to a working day if the Holiday treatment setup is configured for the Interest Capitalization Posting. This also applies to the reversal of rescheduling.
Interest Posting Job: To understand this, let us say a loan is disbursed today, then the system will update the Next Interest Posting Date on a working date, say March 7, 2022, (Monday) if the Holiday Treatment Setup is configured for Interest Capitalization Posting. Now on March 7, 2022, the Interest Posting Job will run and update the Next Interest Posting Date to April 5, 2022, (Tuesday). However, if April 5 was a holiday, then the Interest Posting Job would have updated the Next Interest Posting Date to the next working date as defined by the holiday treatment configured for Interest Capitalization Posting.