Interest Rates Policy

Background

RBI has vide circular DNBS. CC.PD. No.266/03.10.01/2011-12 dated 26 March 2012 (Guidelines on Fair Practices Code for NBFCs) directed NBFCs to have a documented Interest Rate Model Policy approved by the Board of Directors which would lay down internal principles and procedures in determining interest rates and other charges on the loan products offered.

The specific points referred to in the above referred RBI circular are,

• The need for the adoption of an interest rate model calibrated to the risk associated with the loan product offered.
• Charging of exorbitant interest rates by NBFCs.
• Disclosure of rates of interest charged.
• Adopting annualized rates of interest for loans offered to customers.

Objective

The Board through its internal review has laid out and adopted the range of interest rates that shall be applicable to products based on the risk associated with the product. The Company shall endeavour to apply best industry practices without conflicting with and violating the RBI guidelines.

Interest Rate Model:

The interest Rate Model defines the basis on which the interest rate range shall be arrived at for various loan products. The model takes into consideration the various elements and operational expenses along with a fair and equitable premium the business would expect for the loan product under consideration. The following items shall form a part of the Interest rate model –

• Weighted Average Cost of borrowing – The Company shall use the equity raised from its shareholders for onward lending to its customers. Further, it would leverage its net worth suitably and as part of its business will borrow funds from various Banks / Financial Institution for the purpose of lending.
• Operational Expenses –In addition to the Weighted Average cost of borrowing, the company would incur certain expenses towards infrastructure, technology, collection, human resources, Professional fees, and other related expenses to maintain and generate business. These are Operational expenses incurred for business continuity.
• Provisioning for Losses / NPA – The company in its ordinary course of business shall incur certain costs on account of losses arising from NPA customers. This inter alia includes the provisioning required to be made for standard assets. This is classified as the cost of credit. These aforementioned costs are jointly referred to as ‘Base Rate’ and a ‘Risk Premium’ is added to arrive at the appropriate rate to be charged to the customer. The Risk Premium charged would largely depend on the Loan product offered.
• Loan Product– The Company currently offers two loan products each targeting different segment of customers.
  • Small Ticket Digital Personal Loans ranging from INR 5000 – INR 1,00,000 for tenors ranging from 3 months – 12 months. This product facilitates loans for Low Income Group segment of customers who would seek short-term loans for a variety of reasons.
  • Invoice Discounting for Vendors / Suppliers
• Annual Percentage Rate (APR)
  • Small Ticket Digital Personal Loans: Considering the risk associated with this business the Company has decided to benchmark the APR to Interest rates charged on Credit Cards by leading Banks of India like SBI / ICICI Bank / HDFC Bank.
  • Invoice Discounting for Vendors / Suppliers: Considering the risk associated with the product the Company has decided to charge APR of 14% – 24% (depending on the risk profile of the Vendor / Supplier) which is aligned to the rates charged in the market for similar product.

Graded risk approach to determine AP

Risk grading enables the Company to differentiate customers across the different risk spectrums and helps in applying appropriate APR to that customer. The following factors are considered while determining the APR applicable to a particular customer:

• Profile and market reputation of the borrower,
• Inherent nature of the product
• End use for which the Loan is borrowed
• Past repayment track history
• Income proof which in turn would determine the ability to repay
• Regulatory stipulation
• any other factors that may be relevant in a particular case

Communication to Customers:

• The company shall follow the guidelines mentioned in the Fair Practice Code guidelines as issued by RBI from time to time.
• The Company shall transparently intimate to the borrower, the Annual Percentage Rate charged at the time of loan sanction/documentation along with the tenure for which the loan is offered and the resultant installment amount
• The Company shall inform customers of the APR charged on the Loan availed through Loan App / any other communication (Email / SMS etc)
• The Customers will be informed that for understanding the prevailing Interest Rate Policy of the Company, the Customer can visit the Company’s website which will have the policy updated from time to time.

Monitoring and Review:

The Key Management Personnel of the Company would review the APR charged for the Loan Product from time to time and would suitable bring changes to the rates if required