Interest Rate Policy
Know Keeping in view the guidelines issued by RBI from time to time and the good governance practices, the following components are factored in determining the interest rate and other charges chargeable to the customers:
Cost of borrowing:
The prevailing cost of borrowing applicable for the company to achieve a complete matching of assets and liabilities. The company’s borrowings is expected to be a mix of fixed rate as well as floating rate borrowings while all its loans to clients are expected to be on fixed rates. The pricing factors in the risk associated with this.
Cost of operations:
The cost of operations includes manpower cost, infrastructure cost and other administrative costs. Most of these costs are fixed costs and are committed on the basis of budgeted volume of operations. Since these costs come down with increasing volumes and efficiencies, the pricing factor the estimated cost over a reasonable period of time. As a philosophy, the company will charge clients interest rate only as if it is already a large NBFC and growing at a steady state basis. Thus, the cost of start-up and cost of growth are borne by the shareholders.
The portfolio risk is factored on the basis of the type and inherent nature of loans that the company gives, the risk profile associated with this client segment, tenure of relationship with the client, past experience including repayment track record and overall management’s assessment.
The profit margin is fixed on the basis of the return expected by the shareholders and the risks involved. The profit margin should be reasonable to attract fresh capital to sustain growth and can be benchmarked with comparable companies. A reasonable level of gearing is required to be maintained while arriving at the shareholder return. Most nationalized Banks and private sector banks in the country have a steady state of Return on Equity of around 20%.
Prevailing market practices:
The fees and other charges applicable will depend on the market practices and the cost of providing such services. The lending rate as well as the fees charged is fixed, taking into account the sustainability of various factors and it is reviewed periodically by the Asset & Liability Management Committee. The Company intimates the borrower regarding the loan amount, annualized rate of interest, insurance premium, processing fees, penal interest for delayed payment, cheque bounce charges, tenor of the loan and repayment schedule including installment amount at the time of sanction/disbursement of the loan.