Interest Rate Policy

Preamble
Reserve Bank of India (RBI) had vide its Circular DNBS / PD / CC No. 95/ 03.05.002/ 2006-07 dated May 24, 2007 advised that Boards of Non-Banking Finance Companies (NBFC’s) lay out appropriate internal principles and procedures in determining interest rates, processing and other charges.

This was reiterated vide RBI’s circular DNBS (PD) C.C. No. 133 / 03.10.001/ 2008-09 dated January 2, 2009, whereby which RBI advised the NBFCs to adopt appropriate interest rate model taking into account relevant factors and to disclose the rate of interest, gradations of risk and rationale for charging different rates of interest to different category of borrowers. Further RBI vide its Guidelines on FPC for NBFCs DNBS.CC.PD.No.266/03.10.01/2011-12 dated March 26, 2012 and as amended from time to time (RBI Regulations), has directed all NBFCs:
• To 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 borrower;
• To make available the rates of interest and the approach for gradation of risk on web-site of the companies.

This policy should always be read in conjunction with RBI guidelines, directives, circulars and instructions. The company will apply best industry practices so long as such practice does not conflict with or violate RBI guidelines.

In order to ensure its standards of transparency, in conformity with the stipulations of the RBI’s directives and in compliance with the requirements of the RBI Regulations mentioned above and the Fair Practices Code adopted by the Company, the Company has adopted this Interest Rate Policy for determining Interest Rates, Processing and Other Charges and broadly outlining the Interest Rate Model and the Company’s approach of risk gradation in this regard for its lending business.

This Policy applies to clients whose loans are booked in the Company.

The main objectives of this Policy are to:
(i) Ensure that interest rates are determined in a manner as to ensure long term sustainability of business by taking into account the interests of all stakeholders,
(ii) Develop and adopt a suitable model for calculation of a interestrate;
(iii) Enable fixation of interest rates which are reasonable: both actual and perceived; (iv) Ensure that computation of interest is accurate, fair and transparent in line with regulatory guidelines and market practices;
(v) Charge differential rates of interest (if applicable) linked to the risk factors as applicable;
(vi) Decide on the principles, methodology and approach of charging spreads to arrive at final rates charged from customers.

DETERMINATION OF INTEREST RATES ON LOANS AND CREDIT FACILITY

The Company lends money to its customers mainly through digital platform and has various products to cater to the needs of different category of customers. The interest rate of each product is decided from time to time, giving due consideration to the following factors:

1. Cost of Capital : To run the business, the Company has been infused with equity share capital in huge proportions, and accordingly the cost of such equity share capital being infused shall be taken into consideration.

2. Weighted Average cost of Borrowing: Since the Company borrows funds from various banks, financial institutions and other external lender(s), the weighted average borrowing cost, as well as costs incidental to those borrowings like brokerage, consultancy fees, processing fees shall be taken into consideration. The cost of borrowings varies according to market conditions thus pricing of interest rates shall be consequently impacted and decided accordingly.

3. Risk: Risk related to loss of credit due to short tenure of loan, nature of facility, ticket size of loan, geographical condition, customer segment, sourcing channels, stability in earnings and employment, financial position, past repayment track record with us or other lenders, external ratings of customers, credit reports, customer relationship, other existing indebtness, results from digital verifications etc.. Therefore, risk of recovery of loan shall be taken into consideration and accordingly the risk premium would be reckoned.

4. Opex Cost: It includes employee expenses, office and infrastructure related fixed and variable costs, operations costs, sales and marketing expenses, etc.

5. Profit Margin: Fair profit margin is added to arrive at the lending rate. The company may at its discretion fix different margin for different customers , considering the risk of default. All customers will however be notified of the interest payable for the loan to be availed from the company.

Interest Rate
The Company intimates its customers, the loan amount, the annualized rate of interest and any other fees which is applicable for the loan at the time of sanction of the loan along with the tenure, the amount and the due dates of the monthly instalments. The Interest Rate Model of the Company would at large depend on the following:

Tenor of the Loan – The interest rate charge will depend on the term of the loan; structure of the loan; terms of payment of interest.

Internal cost loading –The interest rate charged will also take into account costs of doing business.

Internal and External Costs of Funds –The rate of interest charged is also affected by the rate at which the funds necessary to provide loan facilities to customers are sourced, normally referred to as the Company’s external cost of funds. Internal cost of funds being the expected return on equity issued, is also a relevant factor. The interest rate charged will also take into account costs of doing business.

Credit Risk – As a matter of prudence, bad debt provision cost should be factored into all transactions. This cost is then reflected in the final interest rate quoted to a customer. The amount of the bad debt provision applicable to a particular transaction depends on our internal assessment of the credit strength of the customer.

Other Factors – The rate of interest shall be based on the cost of borrowed funds, matching tenor cost, market liquidity, RBI policies on credit flow, offerings by competition, tenure of customer relationship, market reputation, cost of disbursements, inherent credit and default risk in the products and customer per se arising from customer segment, profile of the customers, stability in earning and employment, deviations permitted, ancillary business opportunities, future potential, group strength and overall customer yield, nature and value of primary and collateral securities, past repayment track record of the customers, external ratings of the customers , industry trends, switchover options, canvassed accounts etc.

The company may adopt discrete interest rate model whereby the rate of interest for same product and tenor availed during same period by customers would not be a standardized one but could be different for different customers depending upon consideration of any or combination of a few or all factors listed out above.

The interest amount would be intimated to the customer.

Interest rates shall be intimated to the customers at the time of sanction/ availing of the loan and the equated instalments/Balloon Payment/Bullet payment apportionment towards interest and principal dues shall be made available to the customer.

The rates of interest for various products offered by the Company are subject to change as the situation warrants and are subject to the discretion of the management and/or changes to extraneous cost factors which has a say in the setting up of the interest rate.

However, the interest rate for each individual customer shall not be changed during the tenure of the loan agreement.

Processing / documentation and other charges
All processing / documentation and other charges recovered are expressly stated in the Loan documents. They vary based on the loan product, geographical location, customer segment and generally represent the cost incurred in rendering the services to the customers.
The practices followed by other competitors in the market would also be taken into consideration while deciding the charges.
All applicable taxes shall be charged as per the guidelines issued by the Government from time to time.

Late Payment Charges
The Company may collect late payment charges for any delay or default in making payments of any dues. These late payment charges for different products or facilities would be decided by the Company from time to time.

Approach for Risk Gradation:
Company grants credit facilities to those customers who have both the intention and the ability to discharge their obligations. To execute smooth underwriting process the Company carries out different processes as per Know Your Customer guidelines and allocates credit grade for each customer.

The risk premium attached with a customer shall be assessed inter-alia based on the following factors:
a) profile and market reputation of the borrower;
b) inherent nature of the product, type / nature of facility;
c) tenure of relationship with the borrower group, past repayment track record and historical performance of our similar clients;
d) group strength, overall customer yield, future potential, repayment capacity based on cash flows and other financial commitments of the borrower, mode of payment;
e) interest, default risk in related business segment;
h) regulatory stipulations, if applicable;
i) and any other factors that may be relevant in a particular case;

The individual assessment criteria for the customer credit grading can be classified into each of these categories. All credit submissions will be classified into three categories: Low Risk, Medium Risk and High Risk.