Reduction of the commitment amount according to the reduction schedule depends on the outstanding commitment amount when each schedule falls due. Due to availment of any linked loans, on a schedule date, the outstanding commitment amount could be insufficient to be reduced to the extent of the schedule amount.

You can define partial reduction to be applicable for the schedule. If defined, the commitment amount is reduced to the extent possible. If partial reduction is not defined, the reduction is not processed until the outstanding commitment amount is replenished sufficiently to the extent of the reduction, by repayments made by the customer.

To specify partial reductions to be applicable, you specify it in the Product Preferences for a loans product. Select the Allow Partial Reduction box in the Product Preferences screen.

The following example illustrates the concept of reduction of commitment amounts:

Example

Your bank has committed to lend a sum of 100000 USD to Mr. Joseph Nbele, one of your customers. The commitment is entered into on 1^st January 2002, and reaches maturity one year later.

Mr. Nbele requests you to provide a reduction schedule for your commitment, to the tune of 10000 USD at the beginning of each month, beginning on 1^st February 2002.

On 1^st July 2002, the commitment amount has been reduced to 40000 USD, through the automatic execution of the reduction schedules by the batch process.

On the same day, Mr. Nbele avails a loan under the commitment, to the extent of 35000 USD. On 1^st August, when the batch process attempts to execute the next reduction schedule, there is an insufficiency in the outstanding commitment amount, to the extent of 5000 USD.

If partial reduction is specified for the commitment product, then the reduction schedule on 1^st August is executed, and 5000 USD is reduced from the commitment amount, bringing the amount available to zero.

If partial reduction is not specified, the schedule is not executed on 1^st August. It is attempted on a daily basis by the batch process, and only be executed when the outstanding commitment amount is sufficient enough to make the reduction of 10000 USD.

Now, Mr. Nbele repays 10000 USD of the loan, on 15^th August, bringing the outstanding commitment amount to 15000 USD. On that day, the batch process successfully execute the reduction schedule that was to have been executed on 1st August.