Interest Rate Policy

INTEREST RATE POLICY

 

1. Background

As per Reserve Bank of India guidelines, the Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances.. Further, the directives states that the rate of interest and the approach for gradation of risk and the rationale for charging different rates of interest for different category of borrowers should be communicated to the borrowers / customers in the sanction letters to them

 

Objective of the policy

To arrive at the benchmark rates to be used for different types of customer segments and to decide on the principles and approach of charging spreads to arrive at final rates charged to customers.

Review of Policy

The Policy shall be reviewed once a year or in between as required.

 

Organization Structure

Board for Directors

The Board of Directors shall have oversight on the Interest rate Policy of MCPL. To ensure effective implementation of the Interest Rate Policy, the Board may delegate certain operational aspects to ALCO, as deemed fit.

 

Asset Liability Committee

Any change in the benchmark rate not covered under this policy would be decided/approved/ ratified by ALCO and would be put up to the Board.

Business can have their internal pricing policies under the overall framework of board approved interest rate policy for company for deciding the spreads to arrive at final rate. Any changes to business level internal pricing policies (if any) will be approved by ALCO.

 

Interest rate Model

MCPL lends money to its customers through Fixed rate loan. Categories of customer segments are as follows.

• Consumer (Unsecured Loans)

 

Fixed rate loans are not linked to benchmark but are decided based on their Cost of Funds (allocated through Fund transfer pricing), Operational expenditure, Business related risks and desired ROE/ROA. Factors affecting calculation of spreads to arrive at final rate are mentioned below.

1. Principles and procedures for charging spreads to calculate final rate

The rate of interest for loans is arrived after adjusting for spread by the relevant business segment. Major factors considered for calculating spreads are as follows but not limited to:

• Interest rate risk

• Credit and default risk in the related business segment

• Historical performance of similar homogeneous clients

• Profile of the borrower
   

• Industry segment

• Repayment track record of the borrower

• Nature and value of collateral security

• Secured Vs unsecured loan

• Ticket size of loan

• Bureau Score

• Tenure of Loan

• Location delinquency and collection performance

• Customer Indebtedness (other existing loans)

The rate of interest for the same product and tenor availed during same period by different customers need not be standardized. It could vary for different customers depending upon consideration of any or combination of above factors.

Other Charges

 

Besides interest, other financial charges like processing fees, origination fees, cheque bouncing charges, late payment charges, reschedulement charges, pre-payment / foreclosure charges, part disbursement charges, cheque swap charges, security swap charges, charges for issue of statement account etc., would be levied by the company wherever considered necessary. Besides these charges, stamp duty, service tax and other cess would be collected at applicable rates from time to time. Any revision in these charges would be from prospective effect.

Communication Framework

Interest rates would be intimated to the customers at the time of sanction / availing of the loan.

 

Interest Rate Policy would be uploaded on the website of the company and any change in the benchmark rates and charges would be uploaded on the web site of the Company.

 

Changes in the underlying benchmark are available on public domain such as RBI, Bank, and company website. Any changes in the spread and/or charges for existing customers would be communicated to them through acceptable modes of communication such as letter, email, SMS, etc.