Collateral R10

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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

T3TCO - Collateral - R9.1

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Collateral is an optional module that allows input and maintenance of Collateral details, monitoring and control of Limits with Collateral. Collateral. Customers may offer 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 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.


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CUSTOMER table is used to provide details of the Collateral owner, Collateral provider and Collateral beneficiary beneficia ry.. Collateral could belong to the borrower or to anyone else who offers the asset as set as security for borrowing. Thus, Owner of Collateral, 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 COUNTRY table is used to indicate the country of location of a collateral. Value of collateral collatera l could be in a Currency different from Limit and a nd / or loan currency. CURRENCY CURRENCY table is used to get exchange rates r ates for arriving at a t 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. Customer.


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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 and linked 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.


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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 a sset type Equities.


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


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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 collateral record 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 re corded 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.


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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 to how 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.


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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 choose more 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 all collateral 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 a ccount 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.


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The ASSET.TYPE and SUB ASSET.TYPE keys are used when a range of assets belonging to a portfolio are pledged as collateral. I f a portfolio number is quoted on the collateral record, the system will pick the COLLATERAL.TYPE to which the 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.


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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 is used 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 code should 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.


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COLLATERAL.PARAMETER is the top level parameter table used to define company level system parameters. REVALUATION.INFO Field defines how may previous values namely revalued date 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.


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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.


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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 are updated 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 to the 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.


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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 field is "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".


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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 rules applicable. 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.


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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 a customer, 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.


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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 allocation and 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.


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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.


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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 fields of 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.


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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 .


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For a secured limit, COLLATERAL is linked to LIMIT record. The field COLL.REQD.AMT is used to control minimum collateral r equired 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.


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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. Both collateral 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.


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The complete linkage is captured here.


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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.


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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, it will 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


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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 with COLLATERAL.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 this calculation 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.1 ST in COLLATERAL.PARAMETER file.


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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.


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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 margin specified 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.


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The above reports are available for COLLATERAL and accessed using the report list option. Collateral inventory report gives full particulars of Nominal value, Execution value, 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. Besides review 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.


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Collateral R10

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