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.
