Background:
As per the Master Direction – Non-Banking Financial Company – Systemically Important Non- Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, dated September 1, 2016, and updated from time to time, all the NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter. The rates of interest and the approach for gradation of risks shall also be made available on the website of the companies or published in the relevant newspapers. The information published on the website or otherwise published shall be updated as and when there is a change in the rates of interest.
Review of Policy:
Any change in the benchmark rate would be decided by the Board of Directors and the Board would recommend such changes; if any to the Board for approval in the subsequent Board Meeting. The policy would be reviewed by the Board of Directors as and when required but at least once in a year.
Business team shall have the authority to fix their internal pricing under the overall framework of board approved interest rate policy for deciding the spreads to arrive at final rate to be charged to the customers.
Interest Rate Model:
| Business | Nature |
| Granting Business Loans | Fixed or Floating interest rate |
The Interest Rate benchmark shall be calculated considering the sum of the following factors:
- Base Cost of funds: The Company borrows funds through various long term and short- term sources including term loans, investment in securities, Working Capital (CC/WCDL), Commercial papers, ICDs etc.
Weighted Average cost of all borrowings (including other costs like Processing Fee, brokerage etc.) net of treasury income (income earned over investment of surplus funds) over Assets under Management/ Loan Assets to be considered for benchmark calculation.
- Opex Cost: It includes all fixed and variable operations costs including employee expenses, administration expenses, sales and marketing expenses etc.
- Risk Premium: Base risk premium to cover business related risks/ expected credit cost (provisions and write-offs) over AUM. The premium will also vary depending on degree of risk involved in lending which includes type of product, general economic condition, mode of repayment by customer, location of customer, Loan tenor, customer category, probability of default, LTV etc.
The rate of interest for the same product and tenor by different customers need not to be standardized. It could vary for different customers depending upon consideration of any or combination of above factors.
- Base ROA: Base Return on assets is the minimum return expected by the company on its assets.
Other Charges:
Other financial fees and charges for the loans like processing fees, operating charges like cheque bouncing charges, late payment charges, reschedulement charges, pre-payment / foreclosure charges, charges for issue of statement account etc., would be decided by the respective Business Heads.
Legal charges like stamp duty, service tax and other cess would be collected at applicable rates from time to time and would be decided upon by respective Business Heads in consultation with Finance and Legal Heads.
Communication of Interest Rate/ Charges:
Interest rates/ other charges would be intimated to the borrowers at the time of sanction / availment of the loan by the Company. The Interest Rate Model along with the rate of Interest charged to the borrowers shall be uploaded on the website of the Company and shall be updated as and when there are changes in the rates. Further, changes in the rates for the existing customers shall also be communicated to them.