collateral r10

8/19/2019 Collateral R10

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T3TCO - Collateral - R9.1 2

After going through this course, the learners will understand

1. Collateral used in Banks

2. T24 features of collateral, Collateral related parameters

3. Collateral Parameters linkage with other static tables

4. Build sequence of collateral

5. Collateral and limits linkage like fixed limits and variable limits

6. Reports and enquiries related to collateral



Collateral is an optional module that allows input and maintenance of Collateral

details, monitoring and control of Limits with Collateral. Customers may offer

collateral items for their liabilities with the Bank. Collateral can vary from Land,Buildings, Plant and machinery, stock of goods, vehicles, planes, ships, paintings,

any movable or immovable assets , fixed deposits with the Bank, any export LC

which would assure a future cash flow, personal and corporate guarantees,

cheques sent for collection and credit balances in accounts.

A collateral type could be an item held outside T24 or an item within T24. If it is

an internal item held, then T24 will always be able to provide current value of the

collateral. In other cases, the Bank should be updating the values of its collaterals

from time to time to reflect latest values.

Collateral could be set to cover a specific borrowing, say a loan or an overdraft in

an account or all outstanding of a Customer.

It is also possible to link collateral to specific limits to make it a secured limit.

This collateral could be for information purpose only or used to determine the

amount of Limit made available to a Customer.

If a limit is marked as Fixed, then limit availability is not directly related to

changing values of collateral. If a limit is marked as Variable, then Online limit

availability changes according to changes in collateral value, subject to

maximum sanctioned amount.





CUSTOMER table is used to provide details of the Collateral owner, Collateral

provider and Collateral beneficiary. Collateral could belong to the borrower or to

anyone else who offers the asset as security for borrowing. Thus, Owner ofCollateral, provider of Collateral and borrower could be different parties. All non

financial details of these people, like name, address, nationality, residence, sector,

industry and status are stored in respective records in CUSTOMER table.

COUNTRY table is used to indicate the country of location of a collateral.

Value of collateral could be in a Currency different from Limit and / or loan

currency. CURRENCY table is used to get exchange rates for arriving at values

of collateral when cross currency transactions are involved.

Collateral can be linked directly to a valid Limit or an Account or Contract or

any outstandings of a Customer.




COLLATERAL.TYPE file is used to define classes of collateral objects such as

buildings, stocks, guarantees etc. The information on this file is used to

determine, for each type, how the collateral value is established, revalued andlinked to other applications.

CUSTOMER.COLLATERAL.TYPE file is used whenever the Collateral

execution value (if defined as a % of Nominal Value in Collateral Type) should

be different for specific Customers.

COLLATERAL CODE file permits definition of allowable collateral object or

types which may occur under each category of right and permits the definition of

a default frequency of review of these rights.

COLLATERAL.PARAMETER file permits the company-level definition of

collaterals.



MARGIN.CONTROL is a table used at SECURITY.MASTER level to assign a

collateral value rate to a particular asset. This rate is then used within the

customer's valuations to ascertain the "Collateral Value", as opposed to the"Market Valuation" of a portfolio.

ASSET.TYPE table is used to define and categorise an individual security or

product within a recognised group. For example all Ordinary share type could be

called Asset type 1 under a heading of "Equities".

SUB.ASSET.TYPE is the file that contains a further definition of an asset. Once

a security is opened at security master level and given an asset number the user

can further define that position by utilising this file. Partly paid shares and fully

paid shares are 2 examples of sub asset types within the asset type Equities.





In COLLATERAL.TYPE, broad types of Collateral such as Deposits, Fixed

assets, Buildings, Guarantees, Stocks, Shares, Debentures etc are defined.

Linkage to other T24 applications, valuation and revaluation rules are specifiedhere.

The Id of the record will be numeric. It is possible to define up to 999 collateral

types.




APPLICATION.INPUT Field is used for defining whether input to field

APPLICATION.ID on the COLLATERAL main file is mandatory, optional or

not allowed. The value entered in this field determines whether or not a collateralrecord belonging to this type may be linked to a contract or account record

elsewhere in the system. When a collateral record belonging to this type is

entered, the input to APPLICATION.ID in COLLATERAL file must be made

based on the definition in this field. It can be set Mandatory when the collateral

belonging to this type is represented by a credit balance or deposit recorded

elsewhere in the system. It can be set Optional when collateral is either

represented by a credit balance or deposit elsewhere in the system, or by an

external object. It can be set as None which means the input of collateral id is

not allowed and this value is applicable only where Collateral is external object.




Nominal value is face value or current market value of the collateral.

Execution value is expected worth it would realise on sale. It could even be a

distress sale. This could be expressed as a percentage of Nominal value if

required or value of underlying MM, LD contract etc when it is Fed.

Third party value shows how much value of the collateral is used outside T24

Bank. Prior right of another lender is shown in this field. This value is deducted

from execution value to determine the net execution value of the collateral.

General ledger value denotes the value that we may take in our books as security

coverage for loan.

Central Bank value is the value that is used for reporting purposes to the central

bank, if need be. For example, if the Central Bank has given any instruction as tohow valuation of shares if taken as security should be done – say 50% of market

value, this field is used to define such scenarios. This could be a percentage of

Execution or nominal values or automatically fed value or non inputtable.

Input of these values in COLLATERAL file may be set as mandatory , optional,

Non Inputtable, percentage of Nominal or Execution values, Fed or Fed with

margins. Fed with margin is available for securities application.




APPLICATION Field defines which applications - contract or account record

elsewhere in the system - may be referenced by the field APPLICATION.ID on

the COLLATERAL main file. It is a multi value field and it is possible to choosemore than application for one COLLATERAL.TYPE.

If cash collateral such as account, deposits, securities, fiduciaries are attached to

a limit record, any change in the collateral value are updated during COB

process. If they are required to be updated online, then collateral values are

recalculated when Limit is drawn. For this purpose, ON.LINE.UPDATE Field

should be set to Yes. Besides, the COLLATERAL.PARAMETER and LIMIT

records should also be set to perform Online updates.

The date and frequency of revaluation of the collateral can be set. Besides this,

rate of revaluation of the execution value can be set by defining revaluation rate.

The revaluation rate, when set, will determine the rate of revaluation of allcollateral records belonging to this type. However, the rate is not required when

the collateral type has an application fed value defined under

EXECUTION.VALUE or NOMINAL.VALUE. In this case, revaluation is

performed by applying the current balance of the contract or account to the

collateral value field(s) and no explicit rate is required. A rate may still be

entered when application-fed values are defined. It will be applied to the

execution value if either only the nominal value is defined as fed or no

application reference exists on the collateral main file record.




The ASSET.TYPE and SUB ASSET.TYPE keys are used when a range of assets

belonging to a portfolio are pledged as collateral. If a portfolio number is quoted

on the collateral record, the system will pick the COLLATERAL.TYPE to whichthe record belongs. If this record refers to a range of asset type and/or sub-asset

types, then the COLLATERAL record will automatically take the value of only

those parts of the portfolio which belong to one of the asset type or sub asset

types listed.

The margin rates specified in MARGIN.CONTROL File are only for information

purposes. The required margin could be directly entered in the ASSET.TYPE and

SUB.ASSET.TYPE records

ASSET.TYPE file is used to define and group the different investments – in

Securities as well as other modules, if needed. For example Equities and Bonds

are two different asset types.

Similarly SUB.ASSET.TYPE file contains a further definition of an asset. For

example Partly paid shares, fully paid shares are defined under asset type.

Similarly interest bearing bonds and non interest bearing bonds could be two

different sub asset type of bonds.




As a first step towards collateral management, all collateral items to be accepted

from customer is broadly classified under COLLATERAL.TYPE records such as

cash deposits, fixed assets, antiques etc. Then COLLATERAL.CODE table isused to further sub classify the collateral objects like Money market fixed

deposits, credit balances in accounts, land, building, bronze sculpture, stone

carvings etc. In T24 each of these sub classifications is recorded as one Collateral

code.

The Collateral codes are linked to Collateral rights. The percentage allocations

under these rights can be recalculated and the rights themselves can also be

reviewed at periodic intervals say business days, daily, weekly, twice a month,

monthly with frequency. Collateral review report is used to review the frequency

and percentage.

There is no compulsion that the Ids for Collateral types and Collateral codeshould be matching in some way - Collateral type can be 001 for which the Code

can be 972. But by using a structured record set-up, it may assist in entering and

understanding the links between the COLLATERAL.TYPE and

COLLATERAL.CODE records. For example, for a collateral type called

Building created with Id of 200, the Collateral codes under that could be set as

201 for Domestic houses and 202 for commercial complexes.




COLLATERAL.PARAMETER is the top level parameter table used to define

company level system parameters.

REVALUATION.INFO Field defines how may previous values namely revalueddate and revalued amount of a collateral record is kept in T24.

When General ledger reports are prepared, for any select line indicating Asset

value, it is possible to get the outstanding based on underlying collateral values

and reallocate it to another target line. The original line number is matched with

the collateral code to get values of underlying collateral. The appropriate value is

moved from the original line to it's reallocated line.

COLLATERAL.ALLOCATION application is used for this purpose. As T24 can

hold different values of a collateral like Nomination value, Execution value,

Third party value etc., we can set in COLLATERAL.PARAMETER as to how the

enrichment of description should appear – Reporting value or Nominal and Third

party value or Execution and Third party value. If nothing is indicated in

COLLATERAL.PARAMETER, then there will not be any descriptive

enrichment.




DEFAULT.ADDRESS Field indicate the types of collateral for which the address

is to be defaulted form CUSTOMER record in the ADDRESS fields on the

COLLATERAL main file.COLLATERAL.LINK provides the user with a direct link from input screen of

the COLLATERAL.RIGHT to input of COLLATERAL objects belonging to it.

COLLATERAL.LINK takes the user to the appropriate COLLATERAL record

straight after they have successfully validated the COLLATERAL.RIGHT record

it relates to. While this is useful for getting the key correct and aiding input, it

should be noted that the records still require authorisation in the correct order.

The order of authorisation is COLLATERAL.RIGHT record before related

COLLATERAL records.

A period during which the collateral record to be retained in live file after its

expiry date can be set through RETENTION.PERIOD field.




ONLINE.UPDATE Field is used to control online update of cash collaterals. If

cash collateral such as account, deposits under LD and MM, securities and

fiduciary are attached to a limit record, any change in these collateral value areupdated during the Close of Business process.

COLLATERAL.CCY Field is used for defining Collateral currency for which FX

risk margin is to be specified. Multi value field associated with Field

FX.RISK.MARGIN which is used to define the margin for collateral currency

when the used is desirous of covering currency conversion risk factor in respect

of collaterals in currencies different from the limit currency then this field can be

used to define the desired margin.

For example, take a LIMIT 100053.100.01 in Currency USD. The

COLLATERAL.RIGHT for this Customer is 100053.1. Currency of the

COLLATERAL 100053.1.1 is GBP and a LD deposit of GBP100000 is linked tothe Collateral. If FX.RISK.MARGIN for COLLATERAL.CCY GBP is specified

as 95, then the SECURED.AMT under COLLAT.RIGHT in the Limit record

100053.100.01 will be updated with USD147962.50 . That is

100000x1.5575x95/100 assuming the MID.REVAL.RATE for GBP to USD is

1.5575 and the EXECUTION VALUE is FED in the COLLATERAL.TYPE.

ORDER.PRIORITY value must be the same for all companies. Can only be

changed through LIMIT.CHANGE application. LIMIT.COL.ALLOC.WORK

table is used for modifying assigned priorities for allocation of collateral to

limits.




COVER.UNSEC.1ST Field is used to set the portion of a LIMIT which is

allowed unsecured by collateral. It may be allowed before any collateral is

allocated or it may be allowed after an amount covered by collateral. If this fieldis "Y" then the unsecured amount is allowed without any collateral being needed

and only when the unsecured amount is exceeded is collateral allocated. If this

field is "N" then an unsecured amount is allowed after no more collateral cover is

available. Blank is treated as "N".




It is possible to set Customer level rules for calculating execution value of any

particular COLLATERAL.TYPE to be used in preference to the normal rulesapplicable. For this purpose CUSTOMER.COLLATERAL.TYPE Table is used .

Execution value different from that in the main collateral type record for a

specific customer.

For example, if the Execution value is 100%N in COLLATERAL.TYPE 100,

and for setting 75%N to a customer say 100053, the

CUSTOMER.COLLATERAL.TYPE 100053-100 will be opened and execution

value will be set at 75%.N. Then Execution Value for the collaterals under

Collateral Type 100 for the customer 100053 will be calculated at 75%N only.

Id for CUSTOMER.COLLATERAL.TYPE is unique. Id comprises of

CUSTOMER id followed by hyphen and COLLATERAL.TYPE Id.




We have seen how the Collateral objects are to be classified.

After this, we have to establish collateral records for the individual customers

who are offering different types of collateral to the Bank.

This is achieved by filling the two tables, namely COLLATERAL.RIGHT and

COLLATERAL.

COLLATERAL.RIGHT file is used to record the status of a right of security and

to indicate against which customer outstandings the right applies. This file is used

to link the collateral to its purpose.

The link between the collateral right and the collateral object itself is implicit in

the item-id structure between the two files. COLLATERAL.RIGHT Id comprises

of Id of Collateral Providing Customer and Serial Number.

COLLATERAL table is used to record the details of collateral submitted by acustomer, its value(s) and, optionally, to link it directly to a customer's supporting

deal elsewhere in the system. Each collateral object belongs to a collateral right.

This is implicit in the item-id structures of the file.




This file indicates the customer offering the Collateral and for whom the

collateral is held as well as the owner of the Collateral. The owner of the

collateral is used for information purposes. It establishes the right of allocationand liabilities covered by the collateral right.

The Id is the customer number who is offering the collateral and a sequential

number. The Sequential number indicates the 1st, 2nd, 3rd rights offered by

collateral provider. The provider may offer upto 99 rights.

If collateral belongs to another customer, which is called 3rd party collateral,

that customer number would be recorded in field CUSTOMER and appropriate

annotation can be made in NOTES field.

The customer liabilities supported by the collateral are detailed in this

application. The liability can be at Contract level, say LD Loan contract,

ACCOUNT level, LIMIT or CUSTOMER Level. If the user wishes to specify

the liability at contract, account or limit level the relevant ID is input into field

LIMIT.REFERENCE. If field is left blank the collateral is deemed to cover all

liabilities of a customer.

The fields COMPANY, PERCENT.ALLOC are associated multi-value, and it is

therefore possible to support more than one limit liability of a customer

allocating to different Products.




COLLATERAL file is used to record the details of collateral submitted by a

customer, its values and, optionally, to link it directly to a customer's supporting

deal elsewhere in the system.Each collateral object belongs to a collateral right. This is implicit in the item-id

structures of the file.

NOMINAL, EXECUTION, THIRD PARTY, GENERAL LEDGER &

CENTRAL BANK VALUES are five value fields associated with each collateral

record.

The system can be instructed to feed the EXECUTION.VALUE from a contract,

account or portfolio elsewhere within T24. If a maximum value has been entered,

the EXECUTION.VALUE which is taken from the T24 application record will

never exceed this amount, regardless of the actual value attached to it at the time.

For each Collateral right, a customer can offer upto 9999 collateral objects.




NOMINAL, EXECUTION, THIRD PARTY, GENERAL LEDGER &

CENTRAL BANK VALUES are five value fields associated with each collateral

record. The allowable forms of input to these fields are determined by the fieldsof the same name on the COLLATERAL.TYPE file.

If input is fed from another application, these values are placed automatically by

the system when the application id is given. The third possible form of update to

these fields is by calculation, in which case the appropriate values are placed by

the system when the fields required for the calculation have been entered.

MAXIMUM.VALUE Field should be used if EXECUTION.VALUE of the item

is of a variable nature but is only pledged up to a certain amount. It represents the

maximum pledged value of the item.

The system can be instructed to feed the EXECUTION.VALUE from a contract,

account or portfolio elsewhere within T24. If a maximum value has been entered,

the EXECUTION.VALUE which is taken from the T24 application record will

never exceed this amount, regardless of the actual value attached to it at the time.

The same principle applies both to user-input of an EXECUTION.VALUE and to

a periodic revaluation of the EXECUTION.VALUE . MAXIMUM.VALUE, if

entered, cannot be exceeded.

Value Date, Expiry Date, and review date with frequencies can be defined.




Items of COLLATERAL may be linked to LIMIT records. For example a

mortgage may be linked to a loan LIMIT.

The link can either be used for information only, or the value of COLLATERAL

can be used to determine the availability of the LIMIT. The setting for fixed or

variable is on the LIMIT record.

The link is made by entering the LIMIT id on the COLLATERAL.RIGHT record

.

When a LIMIT is linked to COLLATERAL the LIMIT must be defined as either

fixed or variable in the FIXED.VARIABLE field on the LIMIT record.

Variable means that the available amount of the LIMIT will correspond to the

current value of the COLLATERAL. Fixed means that the LIMIT is unaffected

by the value of the COLLATERAL and the link is being made for information

only .




For a secured limit, COLLATERAL is linked to LIMIT record. The field

COLL.REQD.AMT is used to control minimum collateral required when fixed

type limits are used. In case of fixed limits type, the LIMIT is unaffected by the

value of the COLLATERAL and the link is being made for information only. If

minimum collateral is to be brought for availing of the limit then this field could

control required collateral. If the required collateral is not provided then during

utilisation of the limit an override is generated. If multiple collateral is entered

with collateral required amount and not provided then multiple overrides are

generated.

Collateral value should be linked to a limit to effect variation in available limits

in line with the changing values of collateral.

A fixed limit remains at the pre agreed amount. A variable limit will

increase/decrease according to the value of the underlying COLLATERAL items.

Input in FIXED.VARIABLE field will determine what type of limit is

established.

Although the limit will fall or rise according to the increase or decrease in the

value of the collateral, this will not exceed the amount specified in fields

INTERNAL.AMOUNT & MAXIMUM.TOTAL in LIMIT record.




Collateral required can be controlled with settings in COLL.REQD.AMT or

COLL.REQD.PRCNT fields. If collateral required percentage is given then

collateral required amount is automatically populated in fixed type limits. Bothcollateral required amount and percentage cannot be defined at a time.

Percentage can be defined on the basis of internal amount. Collateral required

percentage in variable limits alters the secured amount of the respective collateral

right. For a collateral value of 10000 with 200% collateral requirement, secured

amount for the related collateral right will populate 5000. Minimum Collateral

requirement can also be set for different periods.




The complete linkage is captured here.




When a limit is covered by more than one COLLATERAL.RIGHT without

being assigned specific percentage , numeric priority for allocation would be

allocated by T24 .COLLATERAL.RIGHT records which cover only a single limit would be

assigned a higher priority, than those which cove multiple limits. In the

LIMIT.COL.ALLC.WORK table, for a Limit, when percentage of allocation is

not specified, the default priority assigned to a covering COLLATERAL.RIGHT,

would be equal to the number of Limits covered by the COLLATERAL.RIGHT.

Amounts would be allocated from the COLLATERAL.RIGHT in the ascending

order of priority.

When there is a percentage allocation to the Limits in the

COLLATERAL.RIGHT, it would have precedence and the priority would be

updated as “%n” where “n” is the specified percentage.

The field ORDER.PRIORITY of COLLATERAL.PARAMETER could be set to

a new value only through the LIMIT.CHANGE application. The change would

take place only during COB processing.




This illustrates how collateral rights are created, details are defined and

collateral rights are attached to limits.

Since the COLLATERAL.RIGHT 1021.2 covers only one Limit 1021.2010.01, itwill be allotted a priority of 1 by T24, and its Collateral amount of 3,000,000 will

be assigned to the Limit: 1021.2010.01 first. The balance amount of 1,000,000

for the Limit will be assigned by the COLLATERAL.RIGHT 1021.1 with a

priority of 2.

The Limit 1021.2050.01 will be assigned the balance amount of 4,000,000 from

the COLLATERAL.RIGHT 1021.1




Maximum amount of the limit which MAXIMUM.SECURED field in LIMIT

record is used to set maximum secured amount per class of collateral. This can

be used as security for the limit. It is a multi value field associated withCOLLATERAL.CODE that user can specify more than one class of collateral

with maximum secured amount for each of the collateral class.

MAXIMUM.TOTAL field is used to set the maximum overall amount of the

limit which may be granted. It defines the overall maximum allowed amount of a

limit.

In the case of an unsecured limit, or a secured but fixed limit, this field also

defines the ONLINE LIMIT amount which will be made available. In the case of

a variable secured limit, the MAXIMUM TOTAL defines an upper limit to the

value of the ONLINE LIMIT amount. The system will calculate the ONLINE

LIMIT on the basis of the available underlying security but the result of thiscalculation will never exceed the value in this field.

The maximum amount of the limit which may be unsecured can be set at

MAXIMUM.UNSECURED field. This field defines the unsecured portion of a

limit. It is used when a limit is to be partially secured.

Whether the portion of a LIMIT which is allowed unsecured by collateral may be

allowed before any collateral is allocated or it may be allowed after an amount

covered by collateral could be set in field COVER.UNSEC.1ST in

COLLATERAL.PARAMETER file.




Customers may generally pledge their assets held in their portfolio in favour of

other customers. Each pledge has different priorities and the amount allocated to

each customer is calculated dynamically rather than based on fixed percentages.The user can cover the liabilities of group of customers, with the pledge offered

by one or more customers.

T24 will allocate the pledged assets of the main customers to the recipient

customers, based on total liabilities of the recipients, in the sequence of the

priorities allocated, and produce a report during Batch run.

CUSTOMER.PLEDGE application is used to define the person offering pledge,

its beneficiary customer and their order with maximum pledge amount offered

for each priority beneficiary. Id of this record is a valid customer number, who is

offering his assets as pledge for allocation. This table contains details of the

recipient customers, the priority of allocation and the maximum pledged amount.

There is also a provision to specify whether internal pledges are allowed

The priorities cannot be duplicated for different customers. For example, if

customer 100657 gives priority 2 to customer 110101 then the customer 100657

cannot give priority 2 to any other customer. Similarly, customer 110101 cannot

get the same priority from any other customer.




T24 updates CUSTOMER.PLEDGE.GROUP table based on implied pledge

concept. For example, 110101 customer is a member of the Group of the

Customer 100657. This customer has pledged for the recipient customer 110100.Later, Customer 110100 makes a pledge for anyone else. All these pledges are

together grouped in the CUSTOMER.PLEDGE.GROUP

Assets and liabilities of various customers are processed during batch run and

SC.POS.ASSET records generated. A report is produced showing allocation of

pledge between different customers in the pledge group. At the time of allocation,

if the main customer offering pledge is also having liabilities, his liability will be

covered first and only the balance amount is allocated to other customers of the

group in the order of priority. This allocation is shown in CUSTOMER.

COLLATERAL. ALLOCATION table. Total liabilities for Customer 100657 is –

5,093,834.78. Market value of assets is 998,817.03. After calculating the marginspecified in ASSET.TYPE, say 95% here, the total Asset lendable value is

949,826.18. This collateral is to cover the same customer’s liabilities first. As the

liabilities are in excess over the assets, this customer cannot allot any collateral to

others. Instead, he receives collateral from customers 110100 and 110101 to the

extent of 1,000,000 each. In the case of Customers 110100 and 110101,

allocations made by them is shown in MKT.VAL.PASS and LEND.VAL.PASS

Fields. After adjusting their liabilities and after allocation, if they are still left

with any free amount, it is shown in MKT.VAL.FREE.AMT and

LEND.VAL.FREE.AMT Fields. This process is repeated in COB whenever there

is a change in assets and liabilities of group.




The above reports are available for COLLATERAL and accessed using the

report list option.

Collateral inventory report gives full particulars of Nominal value, Executionvalue, Third party value, Expiry details etc for each Collateral type.

Collateral review report furnishes information of status, review dates, review

frequency and expiry date for every collateral to help timely review.

Collateral expiry report gives details of approaching expiry for all collaterals to

enable the Bank to take suitable preventive action. Besides status, it also provides

details of Nominal, Execution and Third party values.

Collateral expired report gives list of collaterals that have expired so that the

Bank could take suitable follow up action to safe guard its interests.

Collateral right review report is a statement on rights to be reviewed. Besidesreview date, it also provides review frequency, validity and expiry dates.

Collateral right expiry report lists collaterals nearing expiry date.

Collateral right expired report gives details of already expired collateral rights.

collateral r10

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