Interest Rate Policy

Table of Contents

Reserve Bank of India vide their Circular DNBS/PBD/CC NO. 95/03.05.002/2006-07 dated May 24, 2007 and subsequent notifications and guidelines including inter alia notification No. DNBS. 204 / CGM (ASR)-2009 dated January 2, 2009 and Guidelines on FPC for NBFCs No. DNBS.CC.PD.No.266/03.10.01/2011-12 dated March 26, 2012 , have stipulated that Boards of Non-Banking Finance Companies (NBFC’s) lay out appropriate internal principles and procedures in determining interest rates, processing and other charges and communicate the annualised rate of interest to the borrower along with the approach for gradation of risk and rationale for charging different rates of interest to different categories of borrowers.

In order to ensure standards of transparency, in conformity with the stipulations of the RBI’s directives and keeping in view the fair practices code and good governance practices the company has adopted the following approach for gradation of risks and Policy for determining Interest Rates, Processing and other charges in respect of its lending business.

Each client represents a different risk profile based on the promoter profile, track record, credit and default risk in the respective Industry/business segment, CIBIL scores, External ratings, repayment record of the borrower with lenders, group strength, nature and value of primary and collateral security, etc. A cost premium/discount is attached to the overall interest rate on the loan for the client based upon the gradation of risks. The company shall be pricing the loans to the client / borrower keeping these factors in view.

1. Cost of borrowed funds
   The weighted average cost of funds would need to be factored. The Asset Liability Management (ALM) Committee plays a critical role in managing the short- and long-term cost of the borrowed funds. ALM committee’s guidance on the weighted average cost of funds for respective tenors would be taken into account.
2. Expected returns on equity
   A reasonable and competitive return on equity will be factored keeping in view sustainability of business and stakeholders’ expectations.
3. Operating costs
   The costs related to doing the business will be factored which would include inter alia average customer acquisition cost, administrative and other operational costs
4. Credit Risk
   Risk of default is inherent in lending business. This would lead to provisioning costs and would need to be built into the overall costs. These could be Industry, customer group or business segment specific.
5. Risk Profile of Customer
   This would be a critical component in determining the risk premium. It would take into account, inter alia, track record, tenure of customer relationship, market reputation, business model, stability in earning and employment, deviations permitted, ancillary business opportunities, future potential, group strength and overall customer yield, past repayment history of the customers etc.
6. Nature and value of primary and collateral securities
   Well collateralized loans offering securities such as exclusive charge on current assets, movable assets, fixed assets, property etc. will attract lower risk premiums and thus lower interest rates as compared to unsecured loans where the rate of interest would be generally higher owing to the higher risk.
7. Tenor of the Loan
   The interest rate charged will depend on the tenure of the loan and the amortization terms. Generally higher tenor loans will attract higher rates of interest on account of increased risk. Also, tenor of the facility is a key factor in deciding on the interest rate for the borrower since short- & long-term funds have different costs associated with them.
8. External Ratings
   External rating of the borrowers from the Rating Agencies like CRISIL, CARE, India Ratings, SMERA, CRIF, etc. also helps in assigning the risk weightage to the client profile. Ratings accorded by such reputed rating agencies as also CIBIL scores will be factored.
9. Subventions available
   Interest subsidies and subsidies available will be factored.
10. Offerings by competitors
    Industry trends and offerings by competitors would be taken into account.

The company will adopt a risk graded and discrete interest rate policy meaning thereby that the interest rate for same loan products and same tenures availed by different customers in the same period will not be standardized but may vary within a range, depending inter alia, on the factors mentioned above. Finer rates would be offered to customers in subsequent cycles of finance based on good repayment history in previous cycles.

The annualized rate of interest and the approach for gradation of risk and rationale for charging different rates of interest to different categories of borrowers shall be disclosed to the borrower.

The rates of interest and other charges and the approach to gradation of risks shall also be made available on the web-site of the company.

The information published in the web-site will be updated whenever there is a change in the rates of interest.

Interest rates could be offered on a fixed or floating basis.

Changes in interest rates would be decided at any periodicity and would depend on volatility in the market.

The company would levy the stipulated rate of interest for delays or defaults in payment of dues along with Late payment charges in line with RBI stipulations These would also be made available in the web-site of the company as stated above.

Annualized interest rates would be advised to the customer at the time of sanction and the EMI apportionments towards interest and principal dues would also be made available to the customer.

Interest changes would be prospective and the change in interest or any other charges would be communicated to the customer as per terms of the loan agreement.
Other financial charges like Processing Fees, Bouncing charges, Late payment charges, Pre payment charges etc. would be levied by the company wherever considered necessary.

Our officers manning the Helplines at our call center will ensure that charges and rates of interest are explained clearly to our borrowers/prospective borrowers and other people interested in our products.

The company shall ensure that all regulatory changes relating to interest and other charges are updated in the policy as and when such changes are made.