Interest Rate Policy
Interest Rate Policy
INTEREST RATE POLICY
The company at present is funded entirely by Equity and hence the cost of equity alone is considered as cost of funds. The cost of equity is considered at 7% to 8%, credit risk premium would be the in range of 3% – 8% and cost of operations to be 2% – 8%. Profile of the customer, nature of loan (secured or unsecured), Tenure etc., would be the drivers in ascertaining the credit risk premium to be charged from the customer.
The rate of interest derived based on the above parameters is subject to the prevailing market rates / the rate at which funds are available to the customer.
The annual rate of interest to be charged from the customer would be as follows:
|Cost of Equity||Credit Risk Premium||Cost of Operations||Rate of Interest|
|7% to 8%||3% to 8%||2% to 8%||12% to 24%|
1. The Company shall follow the appropriate internal principles and procedures in determining interest rates and processing and other charges in line with the approved policies from time-to-time.
2. The rate of interest specified for each loan is at monthly rests, with the corresponding annualized rate being arrived at through Company’s interest rate model which considers relevant factors such as cost of funds, margin and risk premium. The decision to give a loan and the rate of interest thereon are carefully assessed on a case by case basis based on multiple factors which may include the borrower’s cash flows (past, current and projected), borrower’s other financial commitments, the borrower’s credit record, the security for the loan as represented by underlying assets or other financial guarantees etc. Such information is gathered based on information provided by the borrower, credit reports, market intelligence and information gathered by field inspection.
3. The Company shall follow the interest rate model adopted and approved by the Board and made available on the website. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers will be disclosed in the application form and communicated explicitly in the sanction letter.