The sequence which determines the order in which arrears are to be paid in a loan account.
At the product level, the bank can set the rules for treatment of payment when the amount paid is less than the arrears due. A loan installment may only be partly paid by the customer in which case the system will require to know the o rder in which the existing arrears need to be set off. This order is specified in the arrears appropriation sequence. A separate sequence can be specified for regular loans and for non-performing loans.
The sequence makes use of the following abbreviations:
- I – Interest Arrears
- F – Fee Arrears
- S – Legal Fees Arrears
- O – Outgoing Arrears
- D – Suspended Fees
- E – Suspended legal fees
- G – Suspended Premium
- M – Suspended outgoings
- P – Premium Arrears
- N – Non Accrual Interest Arrears (Suspended Interest)
- U – Post Maturity interest Arrears
- T – Post Maturity – Non Accrual Interest arrears (Suspended PMI)
- C – Principal Arrears
It may also be possible that within a particular type of arrear, there maybe more than one installment due. In t his case the longest overdue first flag will specify in which order each each arrear will need to be set off within a date. Ticking this flag will indicate that the system will pick up the earliest date for which arrears are due and then set off arrears based on the appropriate sequence.
Example:
Appropriation sequence specified as – I F A C S O D G E M P L N U T
(Interest, Fees, Arrears on interest(penalty interest), Capital etc.)
Total arrears due – INR 15,000
Total amount paid on 20th May 2004 – INR 10000
The arrears on account and their appropriation as follows for longest overdue first flag not ticked:
Order the arrears by the sequence specified at the product level.
| Due Date | Arrear Type | Amount Due | Order of Set off | Amount of Appropriation | Cumulative Amount setoff |
| 31-Mar-2004 | C - Capital | 4000 | 5 | 3500 | 10000 |
| 31-Mar-2004 | I - Interest | 2000 | 1 | 2000 | 2000 |
| 30-Apr-2004 | A – Arrears on Interest | 100 | 4 | 1000 | 6500 |
| 30-Apr-2004 | C - Capital | 4500 | None | None | None (since there is no money for this arrear) |
| 30-Apr-2004 | I - Interest | 3000 | 2 | 3000 | 5000 |
| 15-May-2004 | F - Fees | 500 | 3 | 500 | 500 |
The arrears on account and their appropriation as follows if longest overdue first flag is ticked:
Order the arrears based on the due date of the arrear as well as the sequence specified at the product level.
| Due Date | Arrear Type | Amount Due | Order of Set off | Amount of Appropriation | Cumulative Amount setoff |
| 31-Mar-2004 | C - Capital | 4000 | 2 | 4000 | 6000 |
| 31-Mar-2004 | I - Interest | 2000 | 1 | 2000 | 2000 |
| 30-Apr-2004 | A – Arrears on Interest | 100 | 5 | 500 | 10000 |
| 30-Apr-2004 | C - Capital | 4500 | None | None | None (there is no money for this arrear) |
| 30-Apr-2004 | I - Interest | 3000 | 3 | 3000 | 9000 |
| 15-May-2004 | F - Fees | 500 | 4 | 500 | 9500 |