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Many Banks and Financial Institutions use lending rates that are linked to the Base Lending Rates defined by the Central Bank of the country. Home Loans and other longer term loans are usually given out by banks/financial institutions at floating interest rates - where the interest rate applicable for the loan is linked to the interest rate set by the Central Bank and is periodically revised by the Central Bank. The interest rate applicable for the loan, can change during the tenure of the loan. The loan may start off as a 10% loan and may get revised to 10.5% after a period of time and can even be revised downwards (for example: 9.5%) depending on guidelines issued by the Central Bank from time-to-time.
Background and strategic fit
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Any number of floating rate schemes can be created. But they would fall under the one of the 3 types explained below. An example illustration is given far down below.
Base Lending Rate
- This is a unique floating rate scheme identified by isBaseLendingRate attribute
- There can be only one Base Lending Rate for an organisation at any given time
- Will have its own period and interest definition
- Loan Products that wants to re-use Base Lending Rate periods with only a differential rate added on top of it should link to this type of scheme
Differential to Base Lending Rate
- Floating rate scheme dependent on Base Lending Rate
- Can define its own Floating rate periods (independent of Base Lending Rate)
- Interest rate specified is differential of Base Lending Rate as of start date of the given period (attribute ratePeriod.isDifferentialToBaseLendingRate will be true)
- Cannot exist without a Base Lending Rate already defined
Independent Floating Lending Rate
- Loan Products that wants to use a differential rate on top of prevailing Base Lending Rate but with their own time periods should link to this type of scheme
Independent Floating Lending Rate
- Floating interest rate scheme with own rate and period
- Not dependent on Base Lending Rate
- floatingRate.isBaseLendingRate and ratePeriod.isDifferentialToBaseLendingRate attributes will be false
- Loan Products that wants to define an independent floating rate and time periods should link to this type of scheme
UI Screens
- New Button under "Admin > Products" by name "Floating Interest Rates"
- New screen that lists all the "Floating Interest Rates" schemes along with "Create" button.
- New screen to Create Floating Interest Rate
- New Screen to View Interest Rate and Applicable Periods along with "Edit" button
- New Screen to Edit Floating Interest Rate
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Loan Product Differential Rate
(A) | Loan Application Differential Rate
(B) | Date
(C) | Base Lending Rate in % (Rates defined as part of "Base Lending Rate type") (D) | Floating Interest Rate (Loan product Linked to "Base Lending Rate") (E)=(A)+(B)+(D as of date) | Differential to Base Lending Rate % (Rates defined as part of "Differential to Base Lending Rate type") (F) | Floating Interest Rate (Loan product Linked to "Differential to Base Lending Rate type") (G)=(F)+(E as of the period start date) |
| 2 | 1 | 01-10-2010 | 8 | 11 | 2 | 13 |
| 10-10-2010 | ||||||
| 16-10-2010 | 9 | 12 | ||||
| 31-10-2010 | 7 | 10 | 1 | 11 | ||
| 10-11-2010 | 2 | 12 | ||||
| 15-11-2010 | 6 | 9 | ||||
| 30-11-2010 | 8 | 11 |