Policy for Determining Interest Rates, Processing and Other Charges
1. INTRODUCTION
The Board of Directors of the Company has adopted the Policy for Determining Interest Rates, Processing and Other Charges (“the Policy”) in accordance with the RBI Directions applicable on the Company, to lay out appropriate internal principles and procedures in determining interest rates, processing and other charges.
This Policy should always be read in conjunction with extant RBI guidelines, directives, circulars and instructions. The Company will apply the best industry practices and ensure the same does not conflict with or violate RBI guidelines.
2. OBJECTIVE
The main objectives of this Policy are to:
- 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,
- Develop and adopt a suitable model for calculation of a reference rate;
- Enable fixation of interest rates which are reasonable: both actual and perceived;
- Ensure that computation of interest is accurate, fair and transparent in line with regulatory expectations and market practices; and
- Decide on the principles, methodology and approach of charging spreads to arrive at final rates charged from customers.
- Certain charges may vary from customer to customer depending on loan product, borrower category, credit history of customer, type of security offered, expenses incurred in sourcing of business, geographical location and cost incurred in rendering service to the customer etc.
3. ROLE OF BOARD OF DIRECTORS
4. DETERMINATION OF INTEREST RATES ON LOANS AND CREDIT FACILITY
The Company lends money to its borrower mainly through digital platforms through fixed interest rate loans and has various products to cater to the needs of different category of borrowers.
Company follows a just and equal approach for charging rate of interest to the borrowers and the same is calculated basis the factors identified affecting the interest calculation which may lead to charging different rate to interest to different set of Borrowers.
The interest rate of each product is decided from time to time, giving due consideration to the following factors:
- Cost of Equity: To run the business, the Company has been infused with equity share capital in huge proportions, and accordingly the cost of such equity being infused shall be taken into consideration.
- Credit Risk: Risk related to loss of credit due to tenure of loan, nature of facility, ticket size of loan, geographical condition, borrower segment, sourcing channels, stability in earnings and employment, financial position, past repayment track record with us or other lenders, external ratings of borrowers, credit reports, borrower relationship, future business potential, results from digital verifications etc. Therefore, risk of recovery of loan can be considered to be in the medium to high category and accordingly the risk premium would be reckoned.
- Opex Cost: It includes employee expenses, office and infrastructure related fixed and variable costs, operations costs, sales and marketing expenses, etc.
- Profit Margin: Fair profit margin is added to arrive at the lending rate.
Further, the rate of interest charged to Borrowers may also be depending upon various factors such as the cost of borrowed funds, cost of disbursements, market conditions, default risk, period of loan, purpose, advance paid by the Borrower and financial position disclosed by Borrower while submitting the Loan Application etc.
| S. No. | Particulars | Percentage |
|---|---|---|
| 1. | Cost of Funds (A) | Xx |
| 2. | Credit Risk (C) | Xx |
| 3. | Opex Cost (D) | Xx |
| 4. | Profit Margin (E) | Xx |
| 5. | Other factors (F) | Xx |
| Rates offered to Borrower: | Upto 36% p.a. |
Approach for Gradation of Risks: Company has the following approach and considers following factors for assessing rate of interest for each borrower: a) Risk related to loss of credit due to short tenure of loan; b) Nature of facility; c) Ticket size of loan; d) Demographic conditions; e) Borrower segment; f) Stability in earnings and employment; g) Financial position; h) Past repayment track record with the Company or with other lenders; i) External ratings of borrowers, credit reports; j) Borrower relationship; k) Other existing indebtedness; l) Results from digital verification; m) RBI Guidelines; and any other factors on a case-by-case basis, as may be applicable.
5. PROCESSING FEES / COMMITMENT FEE / OTHER CHARGES
Apart from interest rate, the Company may levy processing fees / other charges (including stamp duty, service tax / GST and other cess at the rates as applicable from time to time). Any revision in these charges would be implemented prospectively (with due communication to borrowers) on its Borrowers for loans sanctioned on a case to case basis. Generally, the processing fee charged for processing the loan application will be in the range of 4%-25% on the sanctioned loan amount.
6. ANNUAL PERCENTAGE RATE (APR)
APR is the effective annualised rate charged to the borrower of a digital loan. APR as all-inclusive cost of digital loans for the borrower shall be disclosed upfront by the Company and shall also be a part of the Key Fact Statement. Generally, the APR will be in the range of 20-350% on the sanctioned loan amount.
7. CONTINGENT CHARGES
The Company may levy a penal charge as mentioned below if borrower doesn’t service the loan on the due date.
1% per day <=1 day
0.5% per day <=49 days
0% > 49 days
Company shall levy extension fee charges at 10% of outstanding principal amount + GST, if the borrower seeks extension and the Company at its sole discretion, approves the request for extension.
Upon approval of an extension by the Company, the loan tenure shall be revised accordingly, and the standard loan terms and conditions shall continue to apply. No penal charges shall be levied during such extension term.
8. COOLING-OFF PERIOD
Cooling-off period refers to the period during which the borrower shall have the explicit option to exit the loan by paying the disbursed amount without any penalty during an initial “cooling-off period.” A cooling period of 1 (one) day is applicable, as specified in the sanctioned loan terms. For borrowers continuing with the loan even after cooling-off period, foreclosure shall be in accordance with Company policies. The upfront processing fee remains non-refundable under all circumstances.
9. COMMUNICATION TO BORROWERS
The Company shall communicate the effective rate of interest to borrowers at the time of sanction/availing of the loan through the acceptable mode of communication as mentioned in the FPC. Interest Rate Policy would be uploaded on the website of the company and any change in the interest rates and charges shall be updated on the website of the Company.
10. WAIVER / REDUCTION OF CHARGES
Head of the Operations be authorized to waive-off / reduce any amount including Principal amount / Interest Rates, Processing and Other Charges, in his own discretion, as may deem fit. Further, Head may delegate this authority in favour of any person.
11. REVIEW AND AMENDMENT
The Board of the Company shall review and amend this policy as and when required. However, if the Policy is required to be amended due to change in any statutory/ regulatory requirement, requisite modifications shall be carried out and implemented at the earliest with the approval of the Chief Financial Officer of the Company. Such an amended Policy shall be placed before the Board in its immediate next meeting for ratification.