1. Purpose
The Reserve Bank of India (“RBI”) vide its Master Direction – Reserve Bank of India (Non-Banking Financial Company –Scale Based Regulation) Directions, 2023 (“Master Directions”) has advised that the Board of Directors of Non-Banking Finance Companies (“NBFCs”) shall lay out appropriate internal principles and procedures in determining interest rates, processing and other charges. In this regard, RBI further requires NBFCs to adopt an appropriate interest rate model considering relevant factors and to disclose the rate of interest, gradations of risk and rationale for charging different rates of interest.
With a view to institute fair and transparent dealings in the lending business, Whizdm Finance Private Limited (“Company”) has adopted and put in place the following Interest Rate Policy (‘Policy’) parallel to the Company’s Fair Practice Code, in accordance with the Master Directions, as amended and updated from time to time.
The Policy has been formulated with the objective of ensuring that interest rates are determined in a manner as to ensure long-term sustainability of business by considering the interests of all stakeholders.
The Board / Risk Management Committee or any committee delegated by the Board of Directors of the Company will be guided by this Policy while deciding interest rates, penal charges, pre- payment charges (if any), processing charges etc. of the Company. Such committee will determine the pricing range for different customer segment/products within in overall range as approved by the Board.
The interest rates to be charged for different segments and customers will be decided by the business teams to be consistent with the range of rates approved by the Committee. The business teams will take into account relevant factors, including the risk of the applicant defaulting on the loan, prevalent market conditions, competition, inputs from CRO, if any, and ability of the target customer base to service such interest while determining the rate to be charged within the overall range as approved by the Committee/ Board.
2. Types of Interest Rate
The Company charges a fixed interest rate for its loan products. The determination of the fixed interest rate shall be based on various factors discussed in this Policy.
3. Interest Rate Model
The interest rates offered to customers will be determined using a risk-based methodology applicable to all its products. The rates of interest will be influenced by, but not limited to, the following primary and additional factors:
3.1 Primary Factors: Rate of Interest of the Company will primarily be based on the following factors:
a. Cost of Funds:
-
- Cost of Borrowings: The cost of borrowing represents the average cost of raising debt funds through various external sources. This cost is influenced by market conditions and may fluctuate accordingly. Any changes in the cost of funds directly impact the pricing of loans we offer.
- Cost of Equity: To operate effectively, the company also invests its own equity in the business. The cost associated with this equity is considered when determining overall pricing and interest rates.
b. Operating Expenses: Operating expenses refer to the costs incurred in the day-to-day running of the business. These include employee expenses, IT infrastructure costs, fixed and variable costs and other operational expenditures. It does not include any fees that the company pays to DSAs/LSPs/DLAs for sourcing a loan transactions.
c. Cost of Liquidity: The Company needs to keep liquidity buffer to manage liquidity risk and this liquidity buffer comes with negative carry.
d. Expected Return on Assets: This refers to the return expected by the shareholders to ensure the sustainability of the company’s business operations. It aims to balance profitability with charging customers interest rates that are fair, reasonable, and transparent.
e. Risk premium: It is the cost of risk which the business carries on account of the creditworthiness of the borrowers. The risk premium charged to the customer which represents the default risk arising from loan sanctioned will be arrived at based on an appropriate credit risk rating after taking into consideration customer relationship, expected losses etc. The credit risk premium is calculated to cover the potential credit loss risk.
f. Market liquidity and prevailing macro-economic conditions
3.2 Additional Factors: Some of the other key factors and gradations of risk that impact interest rate are:
a. Type of Loan- secured or unsecured
b. Type of Loan Product- Various loan products offered by the Company have unique features. These features will be considered when determining the interest rates for a particular type of loan product.
c. Tenor of facility: The tenor of the facility is a key factor in determining the interest rate for the borrower, as short-term and long-term funds have different associated costs.
d. Perceived Industry Risk and Current Interest Rates: The perceived risk associated with the industry and the current interest rates in the market for similar lending activities.
e. Quality of Security/ Collateral, if applicable
f. Creditworthiness of the borrower, based on internal assessment and bureau assessment.
g. Profile of Customer: Customer profile which includes their credit history, educational qualifications, market reputation, business profile, financial profile, business model, group strength etc. are important factors deriving the interest rate for the loans.
h. Geographic Location: Including local delinquency rates and regional economic conditions.
i. Internal risk score
j. Historical Performance of Similar Clients
k. Subventions available, if any
l. Sourcing channel
m. Repayment from Salary deduction at source
n. Overall Customer Yield: The rate of interest for the same product and tenor availed during the same period might differ from borrower to borrower depending upon consideration of any or combination of a few or all factors listed out in point above.
The interest rate shall be computed on daily outstanding balances basis and charged on either daily or monthly rest or such other rest. For repeat customers of the Company, the Company may offer a relationship discount based on the performance of the customer on the past loan.
The company may, in exceptional scenarios, at its discretion, offer interest rates to match competition offers to retain good quality customers.
The rate of interest for the same product and tenor availed during the same period by different customers need not be the standardized one. It could vary for different customers depending upon consideration of all or any combination of above factors.
3.3 Ceiling on Interest Rate: The Company will ensure that applicable rate of interest to any borrower shall not exceed the maximum rate fixed by the The annualized interest rate shall not exceed 34% per annum.
4. Processing and other Charges
Besides interest, the Company charge following:
4.1 Processing fees ranging between 0% to 7% – Processing fees in this range may vary depending upon tenor, loan amount, sourcing category and other factors.
4.2 NACH bouncing charges: Rs. 500 per bounce
4.3 Penal Charges – The Company shall levy 24% per annum as a penal charge for any delay or default in payments. The penal charge shall be reviewed periodically by the Company and approved by the Board.
Penal charges will be reasonable, non-discriminatory within product categories, and communicated to borrowers in case of non-compliance. Specific clauses attracting penal charges will be mentioned in the loan agreement in bold. There will be no capitalization of penal charges, and all regulatory guidelines will be adhered to.
4.4 Pre-payment / foreclosure charges, – NIL.
In addition to these charges, stamp duty, GST, and other cess, if any, will be collected at applicable rates from time to time, as communicated in the documentation provided. Details of all these charges will be mentioned in the loan agreement and the sanction letter.
Such charges shall be reviewed from time to time based on market practices. The Company’s loan documents shall mention all applicable processing, documentation, and other charges. These charges shall be part of the Loan Agreement and will also be displayed on the Company’s website.
Any revision in these charges will have a prospective effect and will be communicated to the borrower. While determining the charges, market practices and industry standards will also be taken into consideration.
5. Disclosure and Transparency
The Company strictly adhere to Fair Practice Code and other applicable regulations and ensures that its policies and practices align with regulatory expectations and are designed to ensure transparency, fairness and full disclosure to customers: In this regard, the Company ensures proper disclosure of the Rate of Interest, Fees, and Charges will be expressly stated in the Loan agreement or the Sanction Letter and the Key Fact Statement. The Company will provide information on the Rate of Interest, common fees, and charges through an acceptable mode of communication.
The Company will communicate the annualized Rate of Interest to all its borrowers so that its borrowers are aware of the exact rates that will be charged to the respective loan facility. The interest will be charged on actual date of disbursement to the Customer and not from the loan sanction or agreement signing to ensure that fairness and meet regulatory requirements.
The interest will be computed on a daily basis and charged on periodicity as specified in the loan agreement at the rate as stated in the agreement.
6. Administration, Amendment and Review of the Policy
The Board of the Company shall be responsible for the administration, interpretation, application, and review of this Policy. The Board shall also be responsible for bringing about necessary changes to this Policy, if so required at any stage, at its own discretion or with concurrence.
This Policy may be altered or revised as per changes in the market scenario and/or statutory guidelines. The Policy shall be reviewed at least once a year or as and when there are any amendments in the applicable guidelines.