Interest Rate Policy

Preamble

This Interest Rate Policy (“Policy”) has been framed in accordance with the provisions of the Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Master Direction, 2023 (as updated from time to time) and other applicable circulars, including Fair Practices Code guidelines.

The Policy sets out the principles and procedures adopted by the Company for determining interest rates, processing and other charges applicable to various loan products offered by the Company. The objective is to ensure transparency, consistency, and fairness in pricing, while taking into account the Company’s cost structures, risk profile, and market dynamics.

Objective of the Policy

  • Ensure that interest rates and other charges are determined in a fair, transparent, and non-discriminatory manner.
  • Establish a framework for risk-based pricing of loan products.
  • Comply with all applicable RBI regulations and guidelines.
  • Enable customers to make informed decisions by ensuring adequate disclosure of pricing.
  • Maintain consistency in pricing practices across products and customer segments.

Scope and Applicability

This Policy shall apply to all loan products offered by the Company, including but not limited to personal loans, business loans, EMI-based loans, and digital loans, whether sourced directly or through digital platforms or Lending Service Providers (LSPs).

The Policy covers:

  • Interest rates (fixed and floating)
  • Annual Percentage Rate (APR)
  • Processing fees and other charges
  • Penal charges for delay or default
  • Foreclosure and prepayment charges (if applicable)
  • Any other fees or charges associated with lending

Principles of Interest Rate Determination

The Company adopts a risk-based pricing approach wherein the interest rate applicable to a loan is determined based on multiple factors, including but not limited to the cost of funds, operating expenses, risk premium, and desired return on assets.

The interest rate structure shall be designed to ensure that similarly placed borrowers are treated consistently, while also allowing for differentiation based on risk characteristics.

Components of Interest Rate

  1. Cost of Funds: The average cost incurred by the Company for sourcing funds, including interest on borrowings, cost of capital, and other associated expenses.
  2. Operating Costs: Administrative and operational expenses incurred in sourcing, processing, servicing, and recovering loans.
  3. Risk Premium: An additional margin based on the credit risk associated with the borrower, which may vary depending on the borrower’s profile and loan characteristics.
  4. Profit Margin: A reasonable margin to ensure sustainability and growth of the Company.

Risk-Based Pricing Framework

The Company follows a detailed and structured risk-based pricing framework to determine the applicable interest rate for each borrower and loan product.

A. Key Risk Factors Considered

  • Creditworthiness of the borrower
  • Income and repayment capacity
  • Employment / business profile
  • Loan characteristics
  • Existing obligations
  • Customer relationship history
  • Geographical and demographic factors
  • Channel of sourcing
  • Fraud and operational risk indicators

B. Product-Based Pricing Approach

(a) Payday Loans

Payday loans are short-tenure, unsecured loans with relatively higher operational and credit risk. Interest may range from 0.1% to 1% per day depending on the borrower’s profile.

(b) EMI-Based Loans (Personal and Business Loans)

Interest rates may range from 18% to 180% per annum (APR) depending on credit profile, tenure, and product structure.

(c) Business Loans

Interest rates may range from 14% per annum to 36% per annum on a reducing balance basis, subject to periodic review.

C. Internal Risk Grading and Pricing

Borrowers may be classified into low, medium, and high-risk categories based on internal scoring models. Pricing bands may vary according to risk category.

D. Dynamic Pricing and Review

  • Changes in cost of funds
  • Market competition and industry practices
  • Portfolio performance and delinquency trends
  • Regulatory changes and compliance requirements
  • Business strategy and risk appetite

E. Non-Discrimination and Transparency

  • Pricing shall be non-discriminatory within similar risk categories.
  • All applicable rates and charges shall be disclosed through KFS and loan agreements.
  • APR shall be disclosed to enable comparison across products.

Interest Rate Types

Fixed Interest Rate

Loans may be offered at a fixed rate of interest, which remains constant throughout the loan tenure.

Floating Interest Rate

  • Benchmark rate shall be specified.
  • Spread over benchmark shall be disclosed.
  • Reset frequency shall be communicated.
  • Changes shall be applied prospectively.

Annual Percentage Rate (APR)

The Company shall disclose the APR representing the total annualized cost of borrowing, including interest and all applicable charges.

Fees and Other Charges

  • Processing fees
  • Documentation charges
  • Prepayment / foreclosure charges
  • Penal charges for delay or default
  • Administrative charges

All charges shall be clearly disclosed and applied fairly.

Penal Charges

  • No penal interest shall be levied.
  • Penal charges shall be reasonable and proportionate.
  • Charges shall not be capitalized.
  • Charges shall be disclosed in the KFS and loan agreement.

Foreclosure and Prepayment

The Company shall not charge foreclosure or prepayment penalties on floating rate term loans sanctioned to individual borrowers, in line with RBI guidelines.

Transparency and Disclosure

  • Interest rate, APR, and all charges shall be disclosed through the KFS.
  • Loan agreements shall clearly specify all financial terms.
  • Changes shall be communicated in advance and applied prospectively.
  • The Interest Rate Policy shall be published on the Company website.

Review of Interest Rates

Interest rates shall be reviewed periodically based on market conditions, cost of funds, regulatory requirements, and business strategy.

Governance and Approval

This Policy has been approved by the Board of Directors in accordance with RBI guidelines. The Board shall be responsible for ensuring alignment with business strategy, risk appetite, and regulatory requirements.

The Policy shall be reviewed at least annually, or earlier if required, and any revisions shall be placed before the Board for approval.

Review of Interest Rates and Policy

The Interest Rate Policy shall be reviewed periodically and at least annually to ensure continued compliance with RBI regulations, business objectives, and industry practices.