Recurring Deposit

Recurring deposit are the savings product offered by financial institutions which help customer with regular incomes to deposit fixed amount every month into there recurring deposit account for example 500/- every month or as per the defined frequency type.

When the RD account is opened, the maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates.

Customer can avail loans against the collateral of Recurring deposit up-to the value of 70-80% of the Deposit value.

Use-case I: Submit RD Account Application

When setting up/creating a deposit account the following details to be known:

Term/tenure: What is the length of the term/tenure (in months)
Recurring Deposit amount: How much money customer to deposit amount and frequently. There would typically be some rules around min and max deposit supported with mandatory or voluntary options.
Deposit Frequency: It means how frequently the customer has agreed to deposit amount into his RD account
Interest Type: Simple or Compounding
Nominal annual interest rate: What is the interest rate to be applied to deposit amount for the term expressed as a nominal annual rate. There would typically be some rules around min and max interest rate supported.
Pre-matured Interest Rate: Interest rate applicable if customer withdraws RD before the tenure.
Commencement date: On what date does the term/tenure commence from.
Lock-in Period: Days / Months: It typically means customers are not allowed to withdraw deposit before the tenure of the RD Account.
Minimum balance to be maintained: It is typically used for Regular savings account.

Using the above information, it should be possible to derive the following at time of opening/creating a deposit account:

Maturity date: Given commencement date and tenure length, maturity date is known.
Accrued interest on maturity: Accrued interest is indicated to the customer assuming that the monthly installements will be paid regularly. Interest will be calculated on the recurring deposits done by the customer as per the defined frequency.
Maturity amount: maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates.
Recurring deposit Schedule: Schedule of the Recurring deposit with the selected frequency should be maintained for the tenure, this is to track the un-paid schedules of the RD.

A status is automatically assigned to the deposit account of SUBMITTED_AND_AWAITING_APPROVAL (represented on database as integer value 100).

Use-case II: Approval of Recurring Deposit Account

Approval is done by higher ups in the organization. There might a scenario where the User enters the RD account and sends it to approval from the manager. This is normally used when customer demands higher interest rate on the RD. Manager negotiates with customer and comes to a common understanding in the changes to interest rate with some additional criteria of increasing the tenure of the deposit as initially agreed or by increasing the RD amount. Hence, provision for changing the interest rate, Deposit amount, Tenure & interest type frequency is required while approving the RD.

Maturity date: Recalculate the projected maturity date given the current commencement date and tenure length.
Interest on maturity: Re-calucate the the amount of projected interest accrued given the current deposit amount and tenure.
Maturity amount: Recalculate using new projected interest accrued
Record of deposit transaction: When account is activated, a transaction recording transaction related information such as date, amount and type of transaction (DEPOSIT) should be recorded.
Status: Status of deposit account moves from SUBMITTED_AND_AWAITING_APPROVAL to ACTIVE
Re-schedule: Given the current commencement date & tenure length the schedule of the RD should be changed or delete the previous schedule and create a new schedule with the new selected parameters.

Use Case III: Undo Approval

This is a negative scenario and rarely used cases, can be used only when approver feels that there is still some discussions left with the customer before adding a RD account.

Status: Is changed from "Active" to "SUBMITTED_AND_AWAITING_APPROVAL"
Last modified values selected during "Approval of RD Account" will be retained upon doing an Undo approval of an RD.
Schedule will be retained

Use-case IV: Rejection of Recurring Deposit account application'

There will be cases where the negotiations with customers fail on the interest payable component while the RD account in approval status, such cases should be marked as rejected along with the reasons for the rejection. It helps for management to evaluate such rejected cases and to frame products accordingly.

Status: Status of deposit account moves from SUBMITTED_AND_AWAITING_APPROVAL to REJECTED

Use-case V: Applicant withdraws from 'RD account application' process

Customers changes his mind and wants to withdraw from the deposit process. Those cases should be marked as withdraw along with the reasons for withdraw.

Status: Status of deposit account moves from SUBMITTED_AND_AWAITING_APPROVAL to APPLICANT_WITHDREW

Use-case VI: Modification of Recurring Deposit Account Application

The deposit account may not commence on the exact date given when 'submitting the application' for the deposit account. The date on when the 'deposit' transaction is received by the bank/mfi is the date typically from which the deposit account becomes 'active'.

When activating/commencing the deposit account, it should be possible to modify/set details of the account as needed:

Term/tenure: What is the length of the term/tenure (in months)
Recurring Deposit amount: How much money is being deposited
Deposit Frequency: It means how frequently the customer has agreed to deposit amount into his RD account
Nominal annual interest rate: What is the interest rate to be applied to deposit amount for the term expressed as a nominal annual rate.
Interest compounding frequency: Interest is usually compounded at periodic intervals like monthly, quarterly, annually
Commencement date: On what date does the term/tenure commence from: Deposit start date commence from the date of approval. Initial RD date which commence on adding the RD account gets override with the Approval date.

As a result of activation any or all the following 'derived' fields should be set

Maturity date: Recalculate the projected maturity date given the current commencement date and tenure length.
Accrued interest on maturity: Re-calculate the the amount of projected interest accrued given the current deposit amount and tenure.
Maturity amount: Recalculate using new projected interest accrued
Account status: The status of the account should transition from 'PRE-ACTIVATION' to 'ACTIVE'.
Record of deposit transaction: When account is activated, a transaction recording transaction related information such as date, amount and type of transaction (DEPOSIT) should be recorded.
Re-schedule: Given the current commencement date & tenure length the schedule of the RD should be changed.

Use-case VII: Withdrawal and closure of Recurring of Deposit Account

A typical scenario is that the Recurring deposit account reaches the maturity date and the customer withdraws their deposit amount and accrued interest which effectively closes the Recurring deposit account.

Case I: Is Compounding Interest if selected
Recurring Deposit Amount + Interest Accrued for the complete tenure gets computed and the amount is available to withdraw.
Case II: Simple Interest without "Is Interest Withdrawal" option
Recurring Deposit Amount + Interest Accrued for the complete tenure gets computed and the amount is available to withdraw.

Use-case VIII: Full withdrawal and pre-closure of Recurring deposit account

Some deposit accounts allow for the customer to withdraw their money in full from the account earlier than the maturity date but the result of this is heavy penalization. This is known as pre-closure. On pre-closure the interest accrued to date is calculate from the (account start date + amount collections) with the pre-closure interest rate.

Case I: Is Compounding Interest if selected
Recurring Deposit Amount + Interest Accrued for the Recurring savings availed duration with pre-closure interest rate gets computed and the amount is available to withdraw.
Case II: Simple Interest without "Is Interest Withdrawal" option
Recurring Deposit Amount + Interest Accrued for the Recurring savings availed duration with pre-closure interst rate gets computed and the amount is available to withdraw.

Use-case IX: Renewing or 'Rolling over' a Recurring Deposit Account

Its typical to allow a customer to renew an existing deposit account on maturity. If deposit account allows renewal (sometimes known as rolling it over) then we simply want to create/open another deposit account with the same 'terms', 'Matured Amount', 'Interest Rate' for Auto renew scenario. The following may be different for manual renew cases:

Use-Case 1: Manual Renewal of Deposit Account

Recurring Deposit amount: Cumulative of the recurring savings done by a customer for the prescribed term + Interest accrued for the tenure on the recurring deposits.
Term: Customer may opt for different term from the original deposit term.
Record it as a renewal: We should record that this deposit account is a renewal from a pre-existing deposit account (probably best to track the deposit account id it is a renewal of.)
Interest Rate: MFI / Bank may give different interest rate based on the market offerings during the renew period.
Deposit Frequency: Customer may opt to change the frequency which was originally selected for the initial Recurring deposit account.

Use Case X: Job Process for updating matured Recurring Deposit accounts

RD which passes the maturity date and not renewed or withdrawn should be marked as "Matured" in the status column for the respective RD accounts.

This process should also take-care of changing the RD account to regular savings account for matured cases.

Use Case XI: Post Maturity Interest Rate

Customer should renew or withdraw upon the maturity of a Recurring Deposit. However, sometimes customers delay in doing so. In such scenario interest associated with the RD account will not be used for further interest calculation. Instead a regular interest rate or No interest is posted for those customer. Hence, to accommodate that there is a separate parameter provided as "Post Maturity Interest Rate"

Use Case: RD matured and customer not opted for renew or withdraw

Interest will be posted with the Post / Pre-maturity interest rate as defined while creating a RD account for those customer.

Use Case XII: Lock-in Period

Financial Institutions define a lock-in period for a Recurring deposit product. If customer wish to withdraw the Recurring deposit are entitled to honor the Lock-in period function to avail interest for the Date of Deposit account to withdrawal date with the pre-maturity interest rate.

Customer will also be penalized heavily if they do not want to honor the lock-in period.

Case 1: If "Lock-in Period" selection while adding the Recurring deposit account

If customer comes to withdraw or close RD before the lock-in period, user should be prompted about the lock-in period.

Calculate interest with pre-closure interest rate.
Calculate penalty / pre-closure charges based on the pre-closure product definition
Post a withdraw entry with sum of Recurring savings / deposits amount & accumulated Interest for those savings
Post a pre-closure penalty entry

XIII: Pre-closure charges / Penalty for Recurring Deposit: Configuration of the pre-closure should be very dynamic. It varies from Financial Institution to institution.

Few MFI configures pre-closure charges only if customer withdraws amount before the lock-in period.
Other MFI do not define the lock-in period. However, the pre-closure charges are deducted from the RD Interest payable amount.

Case 1: Flat Amount

If customer withdraws before the lock-in period or the maturity date a nominal pre-closure charges are added to the customer RD account.

Pre-closure charges can be defined as a Flat amount

Case 2: % of pre-closure Interest payable

If customer withdraws before the maturity date or Lock-in period a nominal charges are added to the customer RD account. Charges will be defined as % of the Interest payable to the customer for the RD Account commencement date to the withdraw date.