Based on their conventions / requirement, banks permit partial withdrawal or pre-closure of deposits accepted by them. Previously, in the application, AZ.ACCOUNT, on making a partial withdrawal from the deposit, charges and penal interest were either reduced from the principal amount or from the withdrawal amount as defined in AZ.PRODUCT.PARAMETER and the total interest payment was made on the maturity date.
All in One Account
Now, this has been enhanced for the capitalisation and payment of interest online on the partially withdrawn amount till the date of withdrawal. This is applicable in both cases of either setting up of I schedule or not. Presently, the defining of CHARGE LIQUIDATION ACCOUNT is made mandatory when a charge code is defined AZ.PRODUCT.PARAMETER. While making a partial withdrawal the entries pertaining to charges would be routed through the liquidation account.
Example 1 : Start date: 01-04-03 Maturity Date: 07-04-03 Interest paid at maturity.
Deposit Amount: 50000
Interest rate: 5.50% (payable at maturity) Partial withdrawal of 1000 made on 04-04-03.
In this case if the eligible interest for part withdrawal is 2.50%, then,
1) The interest for 1000 for a period 4 days (01-04-03 to 04-04-03) at the rate of 2.50% is to be calculated and capitalised on 04-04-03 itself.
Figure 125 INT CAPITALISED - PARTIAL WITHDRAWAL 2) The interest accrued at 3% for 1000 for 4 days has to be reversed
3) Charges if any are to be recovered as defined in APP.
4) The remaining principal of 49000 will continue to earn interest at the contracted rate of 5.50%
from 01-04-03
5) So at maturity the interest for 49000 will be paid from 01-04-03 till 07-04-03 (i.e. maturity date) at 5.50%
All in One Account
In the case of defining INTEREST LIQUIDATION ACCOUNT in
AZ.ACCOUNT
, all entries pertaining to interest (in all cases of pre-closure, partial withdrawal or closure on maturity) have to be passed through this account only. Presently, though the interest liquidation account is defined, the entries are not routed through the same.When a partial withdrawal or pre-closure of the deposit is made after capitalisation of interest (on the execution of N, or IN schedule), if the eligible rate is lesser than the contracted rate, then for the amount partially withdrawn interest would be recalculated at the eligible rate and the difference amount would be debited from the nominated account (in case no interest liquidation account is defined).
In case of pre-closure of deposit, interest for the entire amount till the date of pre-closure would be recalculated and any excess interest paid would be recovered from the nominated account / interest liquidation account if defined.
In both the above cases, if only I schedule is defined or if the partial withdrawal is made prior to the execution of first N schedules, the adjustment would be made through the AZ account itself.
Example 2 :
Start date: 07-04-03 Maturity Date: 22-04-03
Interest payable daily, I schedule defined Deposit Amount: 15000
Interest rate: 6.9063%
Partial withdrawal of 10000 made on 09-04-03.
In this case the eligible interest for part withdrawal is 4.9063% (i.e., 6.9063-2) then,
1. The interest for 10000 from 7.4.03 to 09.04.03 would be calculated at 4.9063%
[10000 x 4.9063% x 2/360 = 2.73]
All in One Account
Figure 126 ELIGIBLE INT CR
Interest has already been paid for 2 days at 6.9063%.
[10000 x 6.9063% x 2/360 = 3.84]
Hence the differential interest for 10000 @2% would be debited from the nominated account, i.e.
interest actually payable is only 2.73 against an amount of 3.84 already paid. The differential amount of 1.11 would be recovered from the AZ account if no N schedule is defined or if the partial withdrawal takes place prior to the date of first N schedule.
Figure 127 REVERSAL - EXCESS INT PAID
In the above case if any accrual entries have been passed after the last capitalisation date, even those entries would be reversed.
Note: The above functionality is applicable irrespective of whether the interest rate used is a fixed rate, Basic Interest key, Periodic interest rate key, etc…
For referring to a
PERIODIC.INTEREST
table for interest inAZ.PRODUCT.PARAMETER
periodic interest key has to be defined in the field
PERIODIC RATE KEY
and the rate would be picked based on the values defined in Pi METHOD.All in One Account
As shown in the above figure, PI METHOD can contain values as Interpolate, Next & Previous.
Example 3 :
Periodic Interest Table → 01USD
Interest Rates → 1 Day - 5%, 1 Month - 7%, 3 Months - 9%, etc…
AZ deposit has been opened for a period of 15 days and the AZ.PRODUCT.PARAMETER for the AZ ACCOUNT refers to the above table. If PI METHOD is defined as Previous, the interest rate for the deposit would be 5% and if it is defined as next it would be 7%. If the field contains the value
“Interpolate”, the interest rate would be the interpolation of both previous and next rates.
Now for making a partial withdrawal from the deposit created as explained in Example 3 above, in AZ.PRODUCT.PARAMETER, even PI TABLE TO USE has to be defined. This field can contain values as Opening, Current, Lowest & Others. For using the value others, a routine for calculating the eligible interest has to be attached in the field PRE CLOSE RTN.
As explained in the example above if a deposit is opened for 45 days and an attempt is made for partially withdrawing the deposit amount after 3 days of opening the deposit, the eligible rate calculation would be as follows:
a) if the value in pi table to use is current, the interest rate for the applicable period (ie 3 days in the said case), would be taken from the table for the current date or the latest one.
b) If opening, the interest rate would be taken from the table as on the date of the contract.
c) If lowest, the lower of the above two rates would be taken.
Eligible interest rate = Applicable interest rate – penal margin (as specified in APP / AZ account).
In AZ ACCOUNT, the field EARLY RED INT would populate the difference between the contracted rate and the eligible interest rate. (For more details, refer to the user guide on PERIODIC INTEREST ).
The rules for capitalisation of interest online, reversal of accrual interest, if any or adjustment of interest already paid would be as explained in Examples 1 & 2.