LOAN MANAGEMENT

The loan management process here is applicable to both loans related to loans and advances from the company by an employee as well as loans from employee funds (Provident fund, Gratuity fund, DPS fund..) by a member of the fund.

Loan Application and Account overview

1.0 Loan type

Loan type is user definable where you have options to design different loan products and manage the life-cycle e.g. charging interest, number of installments, amount of loan, eligibility etc.

Each loan may optionally have criteria for entitlements which is also user-definable.

There are the following built-in criteria that user can consider while configuring the loan type criteria:

Loan Type Configuration Field Documentation

No.	Field Label	Data Type	Description
1	Loan type code	Text	Unique short code to identify the loan type (e.g., SPL for Special Loan).
2	Loan type name	Dropdown/Text	Descriptive name for the loan type (e.g., Housing Loan).
3	Loan category	Dropdown	Loan classification. Enum: LoanCategory — PF loan(10), Payroll loan(20)
4	Allowance loan deduct	Dropdown (LOV)	Allowance used to deduct loan installments from salary.
5	Control account	Dropdown (LOV)	GL account used for accounting the loan.
6	Charge interest	Checkbox	Indicates if the loan accrues interest.
7	Rate of interest	Numeric (Decimal)	Interest rate (%) to be charged if interest is enabled.
8	Restrict multiple loan same type	Checkbox	Prevents taking another loan of the same type concurrently.
9	Restrict new loan after early close	Numeric	Months to wait before new loan after early closure.
10	Restrict new loan after months regular payment	Numeric	Minimum months of regular payment before reapplying.
11	Loan amount rule	Dropdown	Rule for calculating loan amount. Enum: LoanAmountRule — No limit(10), Max amount(20), Fixed amount(30), Max sum of gross salary and job length fund balance criteria(40), Max of PF own cont or gross salary whichever is higher(50)
12	Installment no rule	Dropdown	Rule to determine allowed number of installments. Enum: InstallmentNoRule — No limit(10), Fixed installment no(20), Max installment no(30)
13	Maximum no. of installments	Numeric	The maximum number of installments allowed.
14	Installment amt rule	Dropdown	Rule to determine installment amount. Enum: InstallmentAmtRule — No limit(10), Fixed installment amount(20), Max installment amt percent of gross salary(30), Max installment amt percent of gross salary all loan exposure(40), Max installment amt percent of gross salary all loan and dps exposure(50)
15	Tot. instal. amt. % on gross salary	Numeric	Total allowable installment % on gross salary.
16	Loan appr validity days	Numeric	Number of days loan approval remains valid.
17	First install due mon	Numeric (1–12)	Month number for first installment due.
18	Spl allow rule	Dropdown (LOV)	Rule defining special allowances applicable to this loan.
19	Limit in job tenure	Checkbox	Restricts eligibility based on employee's job tenure.
20	Include total loan exposure	Checkbox	Considers employee’s overall outstanding loan balance when applying this loan rule.
21	Loan agr template code	Text	Code referencing the document template for agreement.
22	Workflow	Dropdown (LOV)	Workflow process for approval and disbursement.
23	Doc attachment mandatory	Checkbox	Indicates if document attachment is compulsory.
24	Inactive	Checkbox	Marks loan type as inactive/unavailable.
25	Loan info	Text Area	Additional notes or remarks about the loan type.
26	Show previous app info	Checkbox	Allows users to view previous loan application details.
27	Valid from	Date Picker	Start date of loan type availability.
28	Valid to	Date Picker	End date after which the loan type will expire.

Additional options in Loan Type for configuration:

List of options that can be used as rule:

No.	Loan Criteria Name	Value	Description
1	Job confirmed	1	Employment must be confirmed.
2	Minimum length of service	N	Employee must complete the minimum number of months in service.
3	Permanent employee	1	Employee must have permanent status.
4	Retirement date as max period	N	Loan period must not exceed the number of months left until retirement.
5	PF member	1	Must be a member of the Provident Fund.
6	Months gross salary amount	N	Monthly gross salary must meet or exceed the defined value.
7	Months basic salary amount	N	Monthly basic salary must meet or exceed the defined value.
8	Monthly instal max percent house rent	N	Maximum allowed installment must be under the given percentage of house rent.
9	Not suspended	1	Employee must not be currently suspended.
10	Not on leave without pay	1	Employee must not be on leave without pay.

In order to control which leave types can be off-set with the loan-type being configured, maintain the list here. Beyond the list, the system, will not allow merging any other loan type.

First Installment due date

You can set the first installment will be due in days from the date when it was paid

Automatic cancellation of approved loan application

A background job can be set and upon execution, the approved loan applications will be cancelled if the predefined nax days has been over.

2.0 Loan profile

Company policy to define loan profiles that include attributes of loan like interest bearing or not, rate of interest, if there is any criteria to be fulfilled to get the loan, etc.

3.0 Loan application

• Fund loan: The loan applications can be created and submitted by the employee online or by the HR team for the employees.
• Payroll loan: Loan application is processed by HR.

Loan application by employee

When the loan application is created by the employee, the application will have approval status 'Draft' (i.e. Process State = Draft). When the employee submits for approval, a workflow is triggered. The loan application moves on to the next steps only after approval.

Loan application by HR

The loan application can also be created for an employee by an HR person. In this case, no approval workflow will be necessary. HR person will approve automatically.

Loan application by Loan Admin

The loan application can also be created for an employee by the Admin user. In this case, no approval workflow will be necessary and there will be no criteria/restrictions applied. The HR person will approve automatically.

4.0 Loan Payment

Employee funds: Once the loan application is approved, Accounts payable are created automatically and they will be available in the Bank-Cash module's transaction for payment (i.e. Provident fund, gratuity fund, etc.).

Note that, for payroll loans, there is no direct payment transaction is required (unless it is integrated with the accounting module) unless the Inteacc Accounting module is used. Instead, loan payment information is updated directly in creating the respective loan account by the HR user.

5.0 Loan Account

• For any payroll loan, the payment info is updated in the loan account manually. Before the payment info is updated, a loan account needs to be created too. For payroll loans (e.g. salary advance), electronic submission of loan applications is not mandatory.

However, the process is very simple and you only need two fields to be updated to complete it while the rest of the fields are updated automatically based on the loan app selected.

• For the fund loans, the Loan account is created as well and this payment info is updated completely automatically when the payment is made (and posted).

When any loan account is created (automatic for fund long and manual for a company loan) and approved, the entries are posted into the loanAcct table.

On the other hand, when a salary is processed, the installment deducted from the salary is posted automatically to the loan acct.

5.1 First installment due date

The first installment due date is automatically calculated by the system based on the following variables:

• Date Paid
• First installment due parameter defined in respective loan type

In this example, when the payment date is 31 July which is falling withing August payroll month (In this example the payroll month is from 21 Jun to 20 July). Since the parameter for first installment due is = 1, the first installement due month would be September as below:

The instalment due date is taken from the last date of the payroll month e.g. 20th in this case.

5.2 Payment schedule

Payment schedule is automatically generated when the payment is made or the loan Account is created from approved loan application paid.

5.3 Subsidy in payment schedule

Depending on the loan type configuration, subsidy amount is automatically captured by the system when the payment schedule is created.

6.0 Loan account offset

When a new loan is applied for or a new loan account is created, there is an option to merge an existing loan with the new one.

6.1 Loan application and selection of existing loan account to merge.

6.2 Loan account and selection of account to merge

When you select an approved loan application for loan disbursement and creation of a loan account, the proposed loan account for merging/offsetting will be loaded automatically and the total loan amount will be the sum of the applied loan amount and the principal balance of the loan account being merged.

This can be selected at the time of submitting the loan application or when the loan admin/accounts team creates the loan account by making the disbursement.

When a loan account is merged and the principal balance is offset with the new loan account, if there is any loan installment calculated in payroll but the payroll is not set to "Ready for payment" then the payroll is set to "Calc pending". This calc pending status forces the payroll to be recalculated so that the installment amount provisionally deducted from salary is removed.

7.0 Loan installment deductions

Loan installments are automatically deducted from the payroll module. The deduction is based on the deduction date of the installment schedule of the respective loan account. When the salary is processed, any installments falling under the deduction date within the payroll period are deducted automatically. The deduction info is also updated in the installment schedule of LoanAcct.

example:

You may notice above that the amount paid column has the payment status "not paid". Due to the fact that the deduction is updated from payroll which is updating this amount deducted but the status will remain "not paid" until the salary is in "ready for payment" status.

8.0 Reschedule installments

Change the deduct date from the rescheduled menu. There are two different scenarios that can be managed in rescheduling i.e.

• Change the date of any specific installment as a one-off rescheduling, e.g. move one month's installment to another month for deduction.
• Change the total remaining number of installments.

Loan installment deduction Journal from Payroll

The loan deduction in Payroll has accounting integration. With the click of a button, it can be made fully automatic through a nightly background job to process Journals from the payroll module into respective Employee Fund accounts.

9.0 Early settlement

Here is the step-by-step process for early settlement:

For Payroll advances or company loans

1. Early settlement application
2. Approval
3. Early settlement amount receipt (manual update)

When the early settlement application is updated with the received amount (If the payroll is integrated with Accounting systems, this is automated like the fund accounting process below)

For Funds loans early settlement

1. Early settlement application
2. Approval
3. Bank-cash transactions to receive from members

The Bank-cash transaction is processed by the accounting department and automatically updates the following:

• Early settlement app
• Loan account and installment payment schedule

Early settlement can be -

• Full settlement
• Partial - Lump sum payment

When you enter the amount, the system is intelligent enough to determine whether it is a partial or full payment.

For example, in the image above, the settlement is a full payment. On the other hand, if the payment amount proposed is smaller than teh balance amount then system will automatically change the settlement type to "Lump Sum Payment" as you can see in the image below:

In case of lump-sum payment, the system will give you option to select the number of installments, if you want to reduce, new instalment amount and next deduction date i.e. next payroll end date.

If there is any early settlement application is processed during the payroll processing cycle, the following rules are applied:

9.1 Full payment

All unpaid installments will be included. In case of any salary on-hold existing for the employee, the amount locked in the respective salary will be included in the final settlement amount and the on-hold salary will be flagged as "Recalc required" with a colour code.

When the on-hold salary is recalculated, the installment amount will be removed from salary deduction. Same to the DPS installements.

9.2 Partial payment

If the payment is made after the installment due date, the installment prior to the last payroll end date will remain unchanged and only installments afterwards will be changed according to the new EMI

10.0 Employee transfer and Transfer of loan

When an employee is transferred from one company to another within the group, corresponding fund membership and loans are also transferred. This transfer of funds and loans happens automatically when the transfer is approved and posted to the employee profile. The following actions are executed:

• Create FundMemTransfer
• Create fund membership for the new company funds
• Close membership of current funds (move to closing in progress)
• Close loanAcct of current fund/company
• Create loanAcct of new fund/company with the remaining principal amount and number of installments outstanding

11.0 LOAN INTEREST AND CALCULATION OF EMI

To calculate the Equated Monthly Installment (EMI) for a loan with a lag between the loan disbursement date and the first installment due date, you need to consider the interest that accrues during the lag period. Here is the step-by-step process to calculate the EMI: Step-by-Step Calculation

Identify the Key Parameters:
    Loan Amount (P): 100,000
    Annual Interest Rate (R) (example: 10% per annum)
    Number of Installments (N): 24
    Disbursement Date: 21 April
    First Installment Date: 1 June

Calculate the Monthly Interest Rate:
    Monthly Interest Rate (r) = Annual Interest Rate (R) / 12

Calculate the Interest for the Lag Period:
    Lag Period (in days): Number of days from 21 April to 1 June.
    Accrued Interest = Principal * Daily Interest Rate * Number of Lag Days
    Daily Interest Rate = Annual Interest Rate / 365

Adjust the Principal:
    Effective Principal for EMI Calculation = Principal + Accrued Interest

Calculate the EMI:
    Use the standard EMI formula with the adjusted principal:
    EMI=P⋅r⋅(1+r)N(1+r)N−1
    EMI=(1+r)N−1P⋅r⋅(1+r)N​
    Where PP is the adjusted principal, rr is the monthly interest rate, and NN is the number of installments.

Calculation Example

Let's assume an annual interest rate of 10% for this example:

Monthly Interest Rate:
r=10%12=0.1012=0.00833
r=1210%​=120.10​=0.00833

Lag Period:
    Disbursement Date: 21 April
    First Installment Date: 1 June
    Lag Days: From 21 April to 1 May (10 days) + From 1 May to 1 June (31 days) = 41 days

Accrued Interest for Lag Period:
    Daily Interest Rate = 10%365=0.10365=0.0002739736510%​=3650.10​=0.00027397
    Accrued Interest = 100,000×0.00027397×41=100,000×0.0112327=1,123.27100,000×0.00027397×41=100,000×0.0112327=1,123.27

Effective Principal for EMI Calculation:
Peffective=100,000+1,123.27=101,123.27
Peffective​=100,000+1,123.27=101,123.27

EMI Calculation:
EMI=101,123.27×0.00833×(1+0.00833)24(1+0.00833)24−1
EMI=(1+0.00833)24−1101,123.27×0.00833×(1+0.00833)24​

Using the formula:
EMI=101,123.27×0.00833×(1.00833)24(1.00833)24−1
EMI=(1.00833)24−1101,123.27×0.00833×(1.00833)24​

This calculation can be done using a financial calculator or spreadsheet software like Excel. For the sake of simplicity, let's break it down into steps:

    Calculate (1+r)N(1+r)N:
    (1.00833)24≈1.219
    (1.00833)24≈1.219

    Calculate the numerator:
    101,123.27×0.00833×1.219≈1,027.13
    101,123.27×0.00833×1.219≈1,027.13

    Calculate the denominator:
    1.219−1≈0.219
    1.219−1≈0.219

    Finally, the EMI:
    EMI=1,027.130.219≈4,692.30
    EMI=0.2191,027.13​≈4,692.30

So, the EMI for the loan amount of 100,000 with the given lag period and terms would be approximately 4,692.30. Final Note

For precise and accurate calculation, especially considering compounding interest and exact days, it is recommended to use financial software or a detailed spreadsheet model. This example simplifies some of the computations for clarity.

12.0 Workflow

Workflow is optional implementation. When implemented, you may choose one of 3 different options:

1. Simple workflow option
2. Workflow by workflow group
3. Workflow by leave type

11.1 Simple workflow option

Simply create a workflow with WFCategory "Leave application". This will automatically activate the workflow in leave application process.

12.2 Workflow by workflow group

If you have a complex organization with a need for different workflow by employee group, then you can use this option. The workflow group contains a group of different workflow e.g. workflow for leave, loan etc., and the workflow group is assigned at the employee level.

12.3 Workflow by Loan Type

When your organization needs a more granular level of assigning approvers by loan type, use this option. In this option, you can define workflow by "loan type".

This field is optional. When you select, the respective leave type will use the selected workflow. If kept empty, the system will automatically use the leave workflow available.