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Working with Payment Holiday

This section explains about the payment holiday definitions and processing of the same under various circumstances.

Payment Holiday for scheduled payments can be declared by triggering the UPDATE-PAYMENT.HOLIDAY activity (the same can be achieved from the Arrangement Overview page through Request Payment Holidays) and by setting the relevant holiday related attributes as explained in Configuring Payment Holiday. The above said UPDATE-PAYMENT- HOLIDAY activity can be simulated and also be converted to live.

The flexible repayment achieved using a payment holiday is explained in the below workflow:

A loan is created on 1st Jan, 2020 for one year having payments due every month. Assume the customer decides to skip the schedules for the month of April, May and June. The system achieves this flexible repayment through the below flow of activities.

Defining Holiday

Banks or FIIs can define the payment holiday on an arrangement for Instalment Deferral or Decrease, by using the LENDING-UPDATE-PAYMENT.HOLIDAY activity or accessing the Request Payment Holiday field in the Arrangement Overview page and there by providing the Payment Type or Bill Type, Number of Installments and the New Payment Amount fields as required.

The payment holiday is defined based on the Payment Type or Bill Type, so that, all the components of the specified Bill Type or Payment Type are subjected to the Payment Holiday, unless a restriction is defined though the Payment Schedule product condition. Read Restriction in Flexible Repayment in Payment Holiday for more information.

Banks or FIIS can reduce the repayment amount for a particular period by capturing the New Payment Amount and Number of Installments.

The below screenshot displays the payment holiday that can be declared by enabling the Request Payment Holidays field in the Arrangement Overview page. Here, the user has selected to apply Payment Holiday for three installments from the schedule due on Jul 15, 2021.

The payment holiday details are captured in AA.ACCOUNT.DETAILS, whenever a payment holiday is defined as shown below for the specified example.

The details of the holiday is evident in the Payment Holiday drill down in the Arrangement Overview page.

Simulating Payment Holiday

The system allows simulation of a payment holiday, to understand the impact of the payment holiday on the arrangement and then execute the same (instead of directly executing the same). In the below screenshot the user selects the Request Payment Holiday option in the Arrangement Overview page, from where Apply Payment Holiday simulation for the installment of the month Aug 2021 was selected.

The payment holiday simulation results are available under the Simulation tab in the Arrangement Overview page. The details of the simulation are stored in the $SIM files that can be used for further actions. The simulation results are printable and helps the banks to take the holiday execution forward.

Repayment of Holiday Interest

The system continues to accrue interest even during a payment holiday. This accrued interest is automatically collected in the upcoming installment/s immediately after the regular payment resumes.

The user has an option to repay the holiday interest as an additional schedule over a specific period or until maturity. This is achieved by using the Payment Holiday attributes, Repay Type, Repay Period and Refer Settlement (Read Payment Holiday Attributes for more information)

Scenario

This section describes the Payment Holiday to reduce the repayment amount and defer the interest over a period.

Consider a payment in which the monthly instalment is 120 (70 principal and 50 interest) and the payment rule is set to service the interest first.
- If the payment is decreased from 120 to 70, the interest is billed fully and remaining towards the principal or any other component as defined. Thus, there is no accrued holiday interest for processing and trying to defer the holiday interest raises an error.
- If the instalment is decreased from 120 to 40, the interest is partially billed for 40 against accrual of 50. The system tracks the unbilled interest portion for the entire holiday period and considers the same for processing holiday interest after the payment holiday period, based on the Repay Type, Repay Period and Refer Settlement fields in Payment Holiday Transaction Class.

Consider a payment in which the monthly instalment is 120 (70 principal and 50 interest) and the payment rule is set to service the principal first.
- If the instalment is decreased from 120 to 60, the interest is billed fully and remaining towards the principal or any other component as defined. Thus, there is no accrued holiday interest for processing and trying to defer the holiday interest raises an error.

Whenever, a new payment amount is defined while declaring a Payment Holiday, the new amount adjusts the repayment (during the Payment Holiday) in the order of charge, interest and principal components, irrespective of the Payment Rule condition. The remaining amount of the repayment amount, that gets postponed due to the Payment Holiday, is adjusted after the payment holiday period, as per the configuration in Payment Holiday Transaction Class condition.

Example 3 - Holiday Interest Paid

Consider a loan arrangement of USD 5000 at 5%, starting from Nov 2020, to be repaid in 12 monthly installments. The repayment start month is Dec 2020 and ends by Nov 2021 (that is, 12 monthly installments). The Payment type defined is Constant/Annuity and the Recalculate Method after defining Payment Holiday is Payment.

Schedule Months	TOTAL Repayment	Instalment	Principal	Interest	Payment Holiday Interest	Payment Holiday Accrued Interest	Payment Holiday Accrued Interest Cumulative	Outstanding
12/2020	428.07	428.07	407.24	20.83				4592.76
01/2021	0	0	0	0		19.14	19.14	4592.76
02/2021	0	0	0	0		19.14	38.28	4592.76
03/2021	0	0	0	0		19.14	57.42	4592.76
04/2021	592.18	585	565.86	19.14	7.18		50.24	4026.9
05/2021	592.18	585	568.22	16.78	7.18		43.06	3458.68
06/2021	0	0	0	0	0	14.41	57.48	3458.68
07/2021	0	0	0	0	0	14.41	71.89	3458.68
08/2021	0	0	0	0	0	14.41	86.3	3458.68
09/2021	1191.37	1162.6	1148.19	14.41	28.77		57.53	2310.49
10/2021	1191.37	1162.6	1152.97	9.63	28.77		28.76	1157.52
11/2021	1191.10	1162.34	1157.52	4.82	28.76		0	0

The instalment amount is USD 428.07 initially.
Payment holiday is declared for Jan, Feb and Mar.
The monthly accrued interest during holiday period is accumulated to a total of USD 57.42.
This amount is scheduled as an additional installment for holiday interest till maturity.

The holiday installment amount is USD 7.18 and is scheduled from April till maturity.

Another payment holiday is declared for Jun, Jul and Aug.
The outstanding holiday interest is 43.06 and a new holiday starts.
The holiday interest accumulated during the second payment holiday is moved to HOL<INTEREST> balance type at the end of the payment holiday.

The outstanding HOL<INTEREST> pending to be billed at the end of second payment holiday is USD 86.3.

This amount is scheduled as an additional installment for holiday interest till maturity.

The holiday installment amount is USD 28.77 and is scheduled from Sep till maturity.

When declaring a payment holiday with an existing holiday interest schedule, ensure that the holiday interest scheduled has the same bill type as the one that is being declared as holiday. Thus the Payment Holiday Bill Type includes the installment and the holiday interest schedule.

IFRS Contract with EB Cashflow having Payment Holiday

Consider a scenario where the loan has a monthly interest accrual of 30 and bank has defined a holiday for three instalments. The holiday interest is set to be collected over the four subsequent cycles.

Scenario	ACC <Interest>	HOL <Interest>	DUE Regular <Interest>	DUE Holiday <Interest>	Total DUE Interest
Holiday granted for 3 months at the beginning of the month
Day 1	1 Dr	0	0	0	0
Day 30	30 Dr	0	0	0	0
End of 1st month/Day 30	30 Dr	0	0	0	0
End of 2nd Month	60 Dr	0	0	0	0
End of 3rd Month	90 Dr	0	0	0	0
SOD of 3rd Month End	0	90 Dr	0	0	0
End of Holiday
End of 4th Month	30 Dr	90 Dr	0	0	0
Bill raised at the SOD of 4th month	0	67.5 Dr	30 Dr	22.5 (holiday interest is calculated based as Tot Residual Balance/ 4)	52.5 Dr
Bill raised at the SOD of 5th month	0	45 Dr	30 Dr	22.5 Dr	52.5 Dr
Bill raised at the SOD of 6th month	0	22.5 Dr	30 Dr	22.5 Dr	52.5 Dr
Bill raised at the SOD of 7th month	0	0	30 Dr	22.5 Dr	52.5 Dr

The LENDING-UPDATE-PAYMENT.HOLIDAY is a cashflow type activity. Thus, when Update Holiday is triggered, in the above scenario the cashflow handoff happens as projected below.

Timeline	Cashflow handoff (Overall Interest)
In the above illustration consider that the PH was sanctioned on Apr 1 for three instalments
30th Mar	0
30th Apr	0
30th May	0
30th June	52.5
30th July	52.5
30th Aug	52.5
30th Sept	52.5

Impact of Change Schedule in Payment Holiday

When the bank/FIIs defines the Repay Period as Deferred, the holiday interest linked to Payment Type or Bill Type gets deferred for the specified period as mentioned in the Repay Period. At the end of holiday period, the system generates a holiday interest payment type automatically for the holiday interest balances associated with the loan and schedule the holiday interest Payment Type by mirroring the schedule associated with the Interest Property in the Payment Type or Bill Type (as defined during UPDATE-PAYMENT.HOLIDAY Activity). Read Payment Type for Holiday Interest for more information.

Once the Payment Holiday is defined, any change in the schedule (frequency change, bill type change, payment type change, start/end dates), cancels or voids all the future Payment Holiday defined (cancels the existing payment holiday). That is, if an arrangement is in a Payment Holiday Period or has defined a Payment Holiday Period for a future date, the change in schedule cancels all the payment holidays from the date of change of schedule.

An override is raised by the system for modification in the schedule of loan carrying Payment Holiday or having a future date Payment Holiday. Fresh holiday instructions need to be declared, if necessary for additional bills.

The change in schedule affects the Payment Holiday, irrespective of the usage of the Repay Type field, while defining the Payment Holiday.

For example, during a payment holiday, if the user tries to change the future schedule dates of the loan, then the existing payment holiday from the current date is cancelled by the system and user should request a fresh payment holiday for the recent holiday.

The same holds good when there is payment holiday scheduled in future and the payment schedule is changed prior to that scheduled payment holiday.

Payment Holiday Dates

The following section describes backdated and future dated payment holidays with illustrations.

Back Dated Payment Holidays

When a customer is unable to repay his loan and has missed few installments, it is possible that the bank declares those missed installments as payment holidays and restructures the loan. In this scenario, the holiday start date cannot be less than the Activity effective date. For the holiday start to be backdated, the Activity has to be run backdated. This means that, the bank or FIIs can provide a Back Dated Payment Holiday, if the LENDING-UPDATE-PAYMENT.HOLIDAY activity is also back dated.

Future Dated Payment Holiday

If the start date is in the future, then the base date for holiday payment calculation, is the previous payment date of the holiday start date.

Amending Payment Holiday

Payment holiday definition can be reversed, by reversing the actual activity. Any amendments to the existing holiday payments definition can be made by using the CHANGE-PAYMENT.HOLIDAY activity. This functionality helps the bank/FIIs to modify or cancel an already defined Payment Holiday.

Payment Holiday Limit

Payment Holiday Limits allow the bank/FIIs to provide flexible payment or payment holiday options to the customer, by either reducing the repayment amount or by skipping the same, upto a defined limit agreed by the bank/FIIs and the customer. The Payment Holiday limit can be defined by configuring the Payment Schedule Condition as explained in Payment Holiday Limit.

When the repayment obligation is reduced or skipped for a customer, the system compares the amount reduced from the original repayment and with that of the available payment limit defined. An error or an override can be defined, if the limit is breached as per the banks/FIIs convenience.

There can be situations, when the schedule payment amount may change due to changes in rate of interest, term or cancelling the declared holiday in the loan. In such circumstances, the system automatically updates the Payment Holiday limit based on the new payment amount and triggers an alert to the customer when the limit is breached.

Scenario 1

Consider the following conditions:

The maximum limit for flexible repayment is USD 30000
Every month instalment is due for USD 10000.

Consider a contract, having a term of one year for USD 120000 as on Jan 1,2020. The customer now requests for a payment holiday of the entire installment, for the months of Apr, May and Jun. Accordingly bank sanctions the payment holiday. Thus the Payment Holiday Limit now is USD 30000 and the Utilised Payment Holiday Limit is USD 30000.

Later the customer approaches the bank requesting for cancelation of the Payment Holiday, for Jun. This is approved by the bank and thereby the Available Payment Holiday limit becomes USD 10000 and Utilised Payment Holiday Limit now is USD 20000.

Now, the bank decides to increase the interest for the said contract, after Apr. This results in increasing the payment amount from USD 10000 to USD 11000 for the month of May. Since the month of May is within the defined Payment Holiday, the Utilised Payment Holiday Limit increases to USD 21000 and the Available Payment Holiday limit becomes USD 9000.

Revolving Payment Holiday Limit

A Payment Holiday Limit can be configured to reinstate to its initial defined Payment Holiday limit, due to adhoc or excess repayments, over and above the due amount. This can be configured as defined in the Payment Holiday Limit in Payment Holiday configuration. Upon creation of an arrangement, the customer can request for a repayment holiday. The system evaluates the Repayment Holiday Limit for the product and accordingly reduces or skips the repayment obligation, as per the Flexible Payment Limit available. For revolving Payment Holiday Limit, any excess payment towards the principal, results in the evaluation of the Available Payment Holiday Limit with that of the Payment Holiday Limit defined and there by restoring the Payment Holiday limit to the extend of the defined Payment Holiday Limit (This is termed as Limit Restoration). The Available Holiday Limit is updated online and the same is evident in the Arrangement Overview page. This process can be understood from the scenarios below.

Controlling Payment Holidays Count

Banks/FIIs can control the number payment holidays allowed in an arrangement by configuring the HOLIDAY.COUNT periodic attribute in the Payment Schedule product condition. (Read Controlling Payment Holidays Count Configuration for more information)

Consider a mortgage arrangement in Lending product line, where the number of payment holidays that can be defined in a year is restricted to five (using the HOLIDAY.COUNT.YEARLY periodic attribute). If the user defines more than the stipulated payment holidays, the system raises an override.

When the customer tries to define a payment holiday for six instalments, the system displays the following override message: Maximum negotiable value of 5 has been exceeded by 1 in field SCHEDULE.

Defining Restriction on Consecutive Payment Holidays

The system supports restriction of payment holiday in parallel (that is, if an arrangement is within a payment holiday, further definition of a payment holiday is restricted, unless and until the current payment holiday period has expired), through the HOLIDAY.RESTRICT.LIFE periodic attribute, configured in the Payment Schedule product condition (Read Payment Holiday Configuration for more information).

The system restricts definition of parallel payment for payment holidays having Repay Type as Deferred, without the configuration of the Periodic Attribute in the Payment Schedule product condition.

Consider a mortgage arrangement in Lending product line with HOLIDAY.RESTRICT.LIFE periodic attribute configured to raise an error, while defining a parallel payment holiday. Payment Holiday is already defined for the months of February, March, April, May, June and July.

The system’s current date is April 19, 2022 and the user tries to define a payment holiday for the month of August. The system displays the following error: Multiple Holiday requests are restricted in same holiday period.

Paying-off during Payment Holiday

Payoff Simulation and Direct Payoff of the loan arrangement, in a holiday or grace period, as well as, the loan arrangement carrying the unbilled holiday interest, is possible. The payoff statement is generated for the entire loan outstanding including the accrued holiday interest and due holiday amount.

Cancelling Holidays Declared

The user has an option to cancel or shorten the holidays declared, through Modify/Cancel Payment Holidays field in the Arrangement Overview page. The system triggers LENDING-CHANGE-PAYMENT.HOLIDAY when a payment holiday is modified or cancelled.

The payment holiday can be fully cancelled or modified to cancel specific number of holidays. But this cancellation should be consecutive. Out of four schedules marked as holiday, it is possible to:

Cancel first
Cancel last
Cancel first few
Cancel last few

But it is not possible to cancel the holidays in between or in a random order.

Change in schedule after cancel of payment holiday for Jul is:

Cancellation or shortening of holidays can be done only for consecutive schedules and error is raised when the user attempts to cancel the non – consecutive holidays.

Payment Holiday During Migration

The system allows migrations of loans under active Payment Holiday definitions. There are possibly two scenarios to be considered during migration or upgrade of loans.

Loan under payment holiday period at the time of migration
Loan completed grace or holiday period repaying holiday interest at the time of migration

Loan Completed Payment Holiday period Repaying Holiday Interest

Legacy Migration

The migration sequence in case of legacy loans with payment holiday are as follows.

Takeover Arrangement
Capture outstanding loan bills and balances including the Holiday Interest due and accrued
Update ‘Schedule’ for ‘Holiday Interest’ and specify start and end dates based on the period over which the holiday interest is billed

Upgrading Clients

For a customer upgrade to a loan product having Payment Holiday,

The accrue interest is billed fully at the end of the Holiday Period
The holiday Instructions are performed if needed with Holiday functionality in the New Loan Product.
If bank perform upgrade after the end of holiday period and before billing of accrued holiday interest and wishes to use deferred functionality, then they can reverse the earlier holiday requests and reconfigure fresh holiday instructions with defer option.

The Update Holiday activity allows Payment Holiday to be defined for a repayment scheduled on loan takeover or migration date.

Scenario 2

This illustrates the EB Cashflow update for migration during holiday. Consider a loan with a monthly interest accrual of 30 and bank has defined a holiday for three instalments. Holiday interest is set to be collected over the four subsequent cycles, if migration happens during the holiday period on the said loan. In this case, the pre-migration interest is handled through a separate property and the property is excluded from EIR calculation.

Timeline	Accrual	Handoff
Month 1	30	NA
Migration triggered with holiday accrual booked under MIGRPHINT property. This property is set to exclude from EIR calculation. Post migration interest is booked under PHINT property. Holiday declared for month 2 & 3 and repay period set as ‘4’ cycles.
Month 2 (Holiday)	PHINT – 30 MIGRPHINT -30	NA
Month 3 (Holiday)	PHINT – 60 MIGRPHINT -30	NA
End of Holiday period. Here both pre and post migration interest portion are assumed to set as deferred and repaid over 4 billing cycles. The overall pre migrated holiday interest (MIGRPHINT) is split across 4 cycles at 30/4=7.50 The overall post migrated holiday interest (PHINT) is split across 4 cycles at 60/4 = 15
Month 4		PHINT – 15; MIGRPHINT – 7.50 (Exclude from EIR)
Month 5		PHINT – 15; MIGRPHINT – 7.50 (Exclude from EIR)
Month 6		PHINT – 15; MIGRPHINT – 7.50 (Exclude from EIR)
Month 7		PHINT – 15; MIGRPHINT – 7.50 (Exclude from EIR)

In this topic

Products

Ecosystem

Technology

Other Product documentation

Working with Payment Holiday

Defining Holiday

Simulating Payment Holiday

Repayment of Holiday Interest

IFRS Contract with EB Cashflow having Payment Holiday

Impact of Change Schedule in Payment Holiday

Payment Holiday Dates

Back Dated Payment Holidays

Future Dated Payment Holiday

Amending Payment Holiday

Payment Holiday Limit

Revolving Payment Holiday Limit

Controlling Payment Holidays Count

Defining Restriction on Consecutive Payment Holidays

Paying-off during Payment Holiday

Cancelling Holidays Declared

Payment Holiday During Migration

Legacy Migration

Upgrading Clients

Legacy Migration

Upgrading Clients