Automatic Interest Adjustment for Backdated Transactions
When a backdated transaction is made in the system, internally, the system stores the difference in the interest before and after the backdated transaction in a field and then 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.
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.
Currently, the system only supports backdated payments, backdated payment reversals, and backdated interest waivers.
Let us look at the details of automatic interest adjustment for backdated transactions for the following types of 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.)
Exception to this enhancement
This enhancement does not apply to a backdated rate change that is before an existing backdated rate change that has occurred due to the any of the following events that changed the LAD:
A rate change via the RateChange page
A rescheduling via the Rescheduling a Loan page
Running the FloatingRateInterestRevisionJob
Running the FloatingRateLoanResetJob
Running the ChangeInterestRateJob
For example, if today is the 22nd of June and you have made a payment today, which changes the LAD to today. Now if you make a backdated rate change for the 15th of June (backdated rate change means rate change before LAD), you cannot make another backdated rate change before the 15th; however, you can make a backdated rate change on the 16th or 17th. In this example, the system uses the prior rate until the 15th, after which it switches to the new rate. Also, the system recalculates the rate from the 15th, but the new schedules are generated as of today which is the LAD.
A rate change in the system triggers a rescheduling of the loan only if the Interest Rate Change Method field of the loan contract is selected as one of the following:
Change Payment Amount
Keep Same Payment Amount
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.
A rate change in the system triggers a rescheduling of the loan if the Interest Rate Change Method field of the loan contract is selected as one of the following:
Change Payment Amount
Keep Same Payment Amount
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.
Upgrade step
While upgrading to December 2023 release from an older release, to use this enhancement, ensure that you disable the following Validation Rules for the Loan Disbursal Transaction object:
First_Payment_Date_Check
FiT_Last_Billing_Date_Check
FiT_Last_Disbursal_Date_Check
FiT_Last_Payment_Date_Check
For the detailed upgrade steps on how to disable these rules, contact our upgrade team.
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.