INTEREST RATE POLICY

INTEREST RATE MODEL

Interest rate applicable to each loan account, within the applicable range is assessed on a case-specific basis, based on evaluation of various factors detailed below:

• (a) Tenor of the Loan & Payment Terms: Term of the loan, terms of payment of interest (viz. monthly, quarterly, yearly repayment); terms of repayment of principal etc.;
• (b) Internal and External Costs of Funds: The rate at which the funds necessary to provide loan facilities to customers are sourced, normally referred to as our external cost of funds. Internal cost of funds being the expected return on equity is also a relevant factor;
• (c) Cost of Equity: The Company needs to put in some equity portion to run the businesses and cost of such equity is taken into consideration;
• (d) Fund Raising Cost: Depending on the loan product offered by the Company, certain costs includes processing fees on term loans, fees/service/commission/brokerage to source funds through non-convertible debentures, commercial papers, inter-corporate deposits, etc., rating fees/charges, trusteeship fee/charges, exchange listing fee etc.;
• (e) Risk Premium: Base risk premium to cover business related risks and would vary by business, customer segment, geography, sourcing channel etc.;
• (f) Operational Expenses Cost: Operational expenses and costs include employees expenses, fixed and variable costs, sales and marketing costs, etc. that the Company incurs in relation to its operations and business;
• (g) Internal Cost Loading: The costs of doing business and factors such as the complexity of the transaction, capital risk weightage, the size of the transaction, location of the borrower and other factors that affect the costs associated with a particular transaction would be taken into account before arriving at the final interest rate quoted to a customer;
• (h) Credit Risk: Credit loss (risk) cost would be factored into all transactions. The amount of credit risk cost applicable to a particular transaction depends on the internal assessment of the credit strength of the customer;
• (i) Structuring Premium: A premium may be applied to a loan in case the loan has any significant structuring elements with respect to collateral, or other aspects of transaction structure;
• (j) Mark-up Considerations: A markup to reflect other costs / overheads to be charged to the loan and our designed margin;
• (k) Asset Liability Committee’s View & Market Dynamics: Recommendations of the Asset Liability Management Committee (hereinafter referred to as the “ALCO”) on product pricing with respect to changes in market benchmarks, prevailing interest rates offered by peer non-banking financial companies for similar products / services shall be taken into consideration. The forecasts and analysis of ‘what if’ scenarios’ conducted by the ALCO are also relevant factors for determining interest rates to be charged.
• (l) Other factors, if any.

PRINCIPLES AND PROCEDURES FOR CHARGING SPREADS TO CALCULATE FINAL RATE

The rate of interest for loans for various business segments / products and various schemes thereunder is arrived after adjusting for spread by the relevant business segment. Factors taken into account by businesses for calculating spreads are as follows:

• (a) Interest rate risk (fixed vs floating loan)
• (b) Credit and default risk in the related business segment
• (c) Historical performance of similar homogeneous clients
• (d) Profile of the borrower
• (e) Industry segment
• (f) Repayment track record of the borrower
• (g) Nature and value of collateral security
• (h) Secured vs. unsecured loan
• (i) Subvention available
• (j) Ticket size
• (k) Scores / details published by the Credit Information Companies
• (l) Tenure of the loans
• (m) Location delinquency and collection performance
• (n) Customer indebtedness

APPROACH FOR GRADATION OF RISK

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 including usage of internal credit scoring models leveraging traditional approaches like bureau score as well as alternative data sources;
• (b) Inherent nature of the product, type / nature of facility, refinance avenues, whether loan is eligible for bank financing;
• (c) Tenure of relationship with the borrower, past repayment track record and historical performance of our similar clients;
• (d) Overall customer yield, future potential, repayment capacity based on cash flows and other financial commitments of the borrower;
• (e) Nature and value of primary and secondary collateral / security;
• (f) End use of the loan;
• (g) Nature and kind of securities / collateral including value of the assets offered as security, if
• (h) Interest, default risk in related business segment;
• (i) Regulatory stipulations, if applicable;
• (j) Any other factors that may be relevant in a particular case.

RATE OF INTEREST

• (a) Interest rate quoted shall be on annualized basis only in all the documents, internal instructions / communications and publicity materials.
• (b) Where the interest rates are mentioned in non-annualized for promotional purpose, the annualized rate shall also be mentioned along with so as to comply with regulatory requirements and Fair Practice Code.
• (c) The interest shall be deemed payable immediately on the due date as communicated and unless otherwise expressly provided for in the loan documentation executed with the borrower, no grace period for payment of interest is allowed.
• (d) Interest rates offered could be on fixed rate basis or floating / variable rate basis.
• (e) In case of floating / variable interest rates, the interest rates will be benchmarked approved by the Asset Liability Committee (ALCO) and / or Board of the Company, from time to time.
• (f) The rate of interest for the same product and tenor availed during same period by different customers need not be standardized. The final lending rate applicable to each customer will be assessed based on various factors as detailed in this Policy.
• (g) Annualised rate of interest to be charged to borrowers may be in the range as mentioned on the website and as communicated to the borrower in the sanction letter.
• (h) Loan amount, annualised Rate of Interest and Tenure of loan will be communicated to the borrower in the sanction letter.
• (i) Company may levy additional interest or penal interest for any delay or default in making payments of any dues as outlined in the loan agreement and communicated to the borrower in the sanction letter.
• (j) Besides interest, other financial charges like processing charges etc. would be levied by the Company wherever considered necessary. In addition, taxes if any would be collected.
• (k) Changes in interest rates would be decided at any periodicity, depending upon change in benchmark rate, market volatility, internal cost of funds and competitor review.
• (l) Intimation of change of interest or other charges would be communicated to customers.
• (m) The interest re-set period for floating / variable rate lending would be decided by the Company from time to time.
• (n) Discretion to waive / reduce the charges shall be vested with the Board or a senior functionary authorised in this regard, on a case to case basis after suitable delegation of powers is worked out and approved.
• (o) Claims for refund or waiver of charges/ penal interest / additional interest will normally not be entertained by the company and it is sole discretion of the Company to deal with such requests.
• (p) Taxation rules, as applicable, shall be complied with.

RISK CATEGORIZATION OF THE CUSTOMER

The Company shall determine the risk level associated with customers and charge the interest rate accordingly with a change in the risk premium. A classification of high, medium and low risk shall be followed, whose cut-offs and definition will vary depending on the product lines.

OTHER CHARGES

Besides interest, other financial charges like processing fees, cheque bouncing charges, NACH dishonour charges, late payment charges, re-scheduling charges, pre-payment / foreclosure charges, part disbursement charges, cheque swap charges, security swap charges, charges for issue of statement account etc., would be levied by the company wherever considered necessary. Besides these charges, stamp duty, service tax / GST and other cess would be collected at applicable rates from time to time. Any revision in these charges would be implemented prospective basis with due communication to customers. These charges would be decided upon by the respective business / function heads in consultation with operations, finance, compliance and legal heads

AUTHORITY

The Board (and upon its constitution, the ALCO) shall be responsible for deciding the macro and organizational parameters influencing the interest rates to be offered to the customers.

CONTENT ON THE WEBSITE

Appropriate disclosure regarding this Policy shall be made on the Company website.

IMPLEMENTATION

This Policy shall be effective from the date of adoption by the Board.

AMENDMENT

This Policy shall be amended and/or restated and updated from time to time and such amendments and/or restatements and updations shall be effective from the date of adoption by the Board.