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Delinquency

What is delinquency?

When a cardholder fails to make a qualifying payment within the stipulated period for the
first time, the account becomes a Delinquent account. The qualifying payment is
generally set slightly lower than the ‘Minimum Payment Due’ and the stipulated period
may either be set in the system (ARML 13) as the ‘Due Date’ or the ‘Statement Date’.

If the account is already delinquent and the cardholder misses the qualifying payment
again for the current cycle, the account is said to Age.

Similarly, when a delinquent cardholder makes the qualifying payment for the current
cycle, the account is said to Re-age.

There are two types of delinquencies that are generally tracked by most systems:

 Cycle due (contractual delinquency)


 Recency delinquency

CYCLE DUE (CONTRACTUAL DELINQUENCY)

Cycle due (contractual delinquency) is defined as the number of cycles that an account
is past due. Cycle due is the traditional method of aging accounts for delinquency (30
days, 60 days, and so on). Cycle due codes range from 0 (the account has a zero
balance and nothing due) to 9 (the account has an amount that is 210+ days past due).

Arriving at the Contractual Delinquency of an account in VisionPLUS involves setting the


Payment Variance amount. The Payment Variance amount is the maximum amount or
percentage by which the payment can full short of the Minimum Payment Due and still
not result in the aging of the account. The value is set at the logo level.

Example: If the Payment Variance has been set to 10%, and the minimum
payment due is 200, then even if Vikas makes a payment of Rs. 180, then the
account is not aged.

RECENCY DELINQUENCY

This is defined as the number of billing cycles that have passed since the last qualifying
payment was posted to the account. Qualifying payment follows a similar concept as
Payment Variance of Contractual Delinquency.

Recency aging is less strict than cycle due aging because it acknowledges when the
cardholder is making small payments in an effort to reduce the delinquency on the
account. Recency codes also range from 0 (the account has a zero balance and nothing
due) to 9 (the account has not had a qualifying payment in the past 9 cycles).
Cycle Due and Delinquency Bucket
The Cycle Due value indicates the number of cycles for which an amount is due. This
value is an indicator of the customer’s ability to repay. The total account distribution of
the bank by the Cycle Due value is a reflection of the portfolio health of the bank.

The following table indicates the various cycle codes associated with the various
delinquency buckets.

Description Nothing Current 0-29 30-59 60-89 90- 120-149 150-179 180+
(‘x’ days) Due Due 119
Cycle 0 1 2 3 4 5 6 7 8
Codes

Example: The Statement Date for Vikas is March 1. The Minimum Payment Due
for Vikas is Rs 200 and the Due Date is 20th of March.

From the 1st till the 20th, the account is in the Current Due state, while on the 21st,
if the minimum payment has not been made, the account is transferred to the 0-
29 bucket and the Cycle Due value is set to ‘2’.

On the next due date, i.e. 20 th of April, if the payment has still not been received,
the amount is transferred to the 30-59 bucket and the Cycle Due value is set to
‘3’.

ILLUSTRATION TO EXPLAIN CONTRACTUAL DELINQUENCY AND RECENCY DELINQUENCY

Vikas has an account for which the statement date is the 1 st of every month and the
Payment Due Date is the statement date of the next month. The payment variance is
90%. He makes some transactions in December for a total of Rs 1000.

 On Jan 1, a statement is generated for his account in which the balance is 1000 and
the minimum payment due is Rs. 100. So, on the 1 st the delinquency table looks likes
this:

Jan 1 Feb 1 Mar 1 Apr 1 May 1


Current Due 100
0-29 (2)
30-59 (3)
60-89 (4)
90-119 (5)
120-149 (6)

 Vikas does not make any payment in Jan and has not made any new transactions.
This causes the Rs. 100 from Jan to move to the 0-29 bucket. Also, on 1st Feb,
another Rs. 100 from the January bill of 1000 gets added to the Current Due bucket.

Jan 1 Feb 1 Mar 1 Apr 1 May 1


Current 100 100
0-29 (2) 100
30-59 (3)
60-89 (4)
90-119 (5)
120-149 (6)

The Cycle Due (Contractual Delinquency) at this stage is 2 and Recency


Delinquency is 2 as qualified payments have not been made for 2 cycles.

 On March 1, a new statement is generated. There have been no new transactions in


Feb and no payment received yet. The account now looks like this:

Jan 1 Feb 1 Mar 1 Apr 1 May 1


Current 100 100 100
0-29 (2) 100 100
30-59 (3) 100
60-89 (4)
90-119 (5)
120-149 (6)

The Cycle Due (Contractual Delinquency) at this stage is 3 and Recency


Delinquency is 3 as qualified payments have not been made for 3 cycles.

 Vikas makes a payment of Rs. 150 by March 10. This causes his Contractual
Delinquency to re-age. Rs 100 are taken off from his last bucket and Rs 50 from the
bucket prior to that. This is what is account look like on the 10h of March:

Jan 1 Feb 1 Mar 1 Apr 1 May 1


Current 100
0-29 (2) 50
30-59 (3)
60-89 (4)
90-119 (5)
120-149 (6)

The Contractual Delinquency is now down to 2 from 3 and the Recency


Delinquency is 0, since 0 months have passed since his last qualifying payment.

RE-AGING

This is the process where the delinquency of the account is adjusted in a way that the
account becomes less delinquent, as and when payments are received from the account
holder towards his outstanding balance.

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