Interest Rate and Service Charges

INTRODUCTION 

The Reserve Bank of India (“RBI”) vide its Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023, as updated from time to time, (“SBR-MD”), requires non-banking financial companies to 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. Respo Financial Capital Private Limited (“Company”) is a non-banking finance company that offers unsecured personal loans to its customers/ borrowers.  

In order to ensure its standards of transparency, in conformity with the stipulations of the RBI’s directives and in compliance with the requirements of RBI mentioned above and the fair practices code adopted by the Company, the Company has adopted this interest rate policy for determining interest rates, processing and other charges and broadly outlining the interest rate model of the Company and the Company’s approach of risk gradation in this regard for its lending business (“Interest Rate Policy”). 

This Interest Rate Policy should always be read in conjunction with RBI guidelines, directives, circulars and instructions, including the SBR-MD. The Company will apply best industry practices so long as such practice does not conflict with or violate applicable laws or RBI guidelines. 

This Interest Rate Policy applies to clients/ customers/ borrowers whose loans are booked in the Company. 

KEY OBJECTIVE  

• To arrive at interest rate to be used for different categories of borrower. 

• Communicate the annualised rate of interest to the borrower along with the approach for gradation of risk and rationale for charging different rates of interest to different categories of borrowers.  

• Make available the rates of interest and the approach for gradation of risks on the website of the companies.  

INTEREST RATE MODEL AND RISK GRADATION 

The interest rate to be charged to the borrower for the loans will be decided keeping in view the RBI’s guidelines.  

1.The interest rate offered to customers shall take into account the following components: 

*Note:- All interest rate components are annualized. 

2. 2.  The Company charges a fixed interest rate to Personal Loan customers. This interest rate does not change during the tenure of the loan. The rate of interest charged to each customer is computed by adding the values of all components of the Interest Rate Model as mentioned above. The final interest rate charged to a customer will be equal to: 

Rate of Interest charged to the customer =  COB + Negative Carry + Operating Costs + Credit Risk Premium + Expected Return on Assets 

2.1 COB, Negative Carry, Operating Costs, Expected Return on Assets and Tenor Premium remain constant and do not change on a customer basis. Only the credit risk premium will vary based on the customer segment and it will be determined on the basis of a risk gradation as outlined in the clause 3 below. 

2.2 Based on the interest rate model, as aforesaid, the minimum and maximum interest rate charged to the customers for Personal Loans shall be 21% and 36%. 

3. The risk gradation applicable to a customer will be assessed inter-alia based on the following factors: 

• profile and market reputation of the borrower, 
• overall customer yield, future potential, repayment capacity based on cash flows and other financial commitments of the borrower, mode of payment
• regulatory stipulations, if applicable, and any other factors that may be relevant in a particular case, 
• location of the borrower, 
• external credit score/ rating of the borrower e.g. Bureau score, 
• performance of the borrower with respect to other/ past loans availed by the borrower from other financial institutions. 
• Credit and default risk  

4. The borrower is charged an annual rate of interest, details of which are specified on the Company’s website, as updated from time to time.  

5. The Company will follow appropriate internal principles and procedures, in line with applicable laws and regulations, in determining interest rates, processing fees and other charges in line with this Interest Rate Policy. 

6. The decision to give a loan and the rate of interest thereon are carefully assessed on a case-to-case basis based on multiple factors which may include the borrower’s cash flows, credit and default risk associated with borrower, other financial commitments, credit record etc. Such information is gathered based on personal information (age, employment type, income etc.) provided by the borrower, credit report, market intelligence and any other information as available to Respo.  

The Company will follow the interest rate model adopted and approved by the board of directors (“Board”) in this Interest Rate Policy and will be 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. 

7. Interest rate would be intimated to the borrower at the time of sanction / availing of the loan. The interest rate charged to borrower is subject to change as per (i) any change in applicable laws; (ii) regulations and directions issued by RBI; or (iii) at the discretion of management of Respo based on the variables as set by the management of Respo in this Interest Rate Policy. Any change in interest rate charged or Late Payment Penalty Charges will be communicated to the customer separately and will only be applicable prospectively. These communications are done in a language understood by the customer. Any updates with respect to rates of interest, approach for gradation of risks will be reflected on website of the Company and on other platforms where such information may be displayed.   

8. The loan terms including the loan amount, annualized Percentage Rate , Late Payment Penalty Charges, and other relevant charges payable to the borrower through the life of the loan will be disclosed in the key fact statement, sanction letter and the loan agreement. This ensures complete transparency on costs associated with the loan. 

9. The rate of interest will be annualized rate so that the borrower is aware of the exact rates that would be charged to the account.  

10. The Company will share/ make accessible to its customers, through appropriate channels, a simple and easy to understand statement at the end of each quarter which will at the minimum, enumerate the principal and interest recovered till date, EMI amount, number of EMI’s left and annualized rate of interest/ annual percentage rate for the entire tenor of the loan.  

11. The Company will ensure that the charging of interest is from the date of actual disbursement of the funds to the customer and not from the loan sanction date, agreement signing, or cheque issuance. In the case of loans being disbursed by cheque /DD, interest shall be charged from the date of handover of cheque /DD. This ensures customers are billed only for the period in which they have access to the funds. 

12. Interest on all Loan Products is calculated on a pro-rata basis for any partial-month loan disbursal or repayment, ensuring that interest is charged only for the period the loan is active. Interest is only charged on the principal outstanding 

13. In the case of disbursal or repayment of loans during the course of the month, the Company will charge interest only for the period for which the loan was outstanding. 

14. If the Company is collecting one or more instalments in advance, it will ensure not to reckon the full loan amount for charging interest. 

FEES AND CHARGES  

Other financial fees and charges for the loans like processing fees, operating charges like cheque / mandate bouncing charges, late payment penalty charges, re-scheduling charges, pre-payment/ foreclosure charges, charges for issue of statement of account etc., would be decided by the internal working group (consisting of the CEO and any one of the CRO, CFO, COO) (“Internal Working Group”) approved by the Board of Directors of the Company, considering market practices and legal charges like stamp duty, service tax and other cess would be collected at applicable rates from time to time and would be decided upon by the Internal Working Group.  

All penalties charged to customers for late repayment shall be outlined in bold in the loan agreement. Further, the quantum and reason for Late payment penalty charges shall be clearly disclosed by the Company to customers in the loan agreement and in the Key Facts Statement. Whenever reminders for non-compliance of material terms and conditions of the loan agreement are sent to customers, Late Payment penalty charges shall be communicated. 

Further, with respect to implementation/ levy of fees and charges, the Company will ensure that:  

• A clear and transparent communication is made to the customer about all fees and charges as part of loan agreement/ sanction letter;
• Any upfront fees and charges that is not communicated in the agreement should not be imposed on the customer for availing the loan product; and 
• Any change in contingent / service charges or introduction of new contingent / service charge should be implemented only prospectively except for change on account of regulatory/ statutory changes. 

DETAILS OF CHARGES 

*Note: Applicable taxes, and other cess would be levied on such charges. 

PENAL CHARGES  

This Interest Rate Policy is to be read in conjunction with the Company’s policy on penal charges.  

Claims for refund or waiver of charges/ penal charges/ additional interest would be at the sole discretion of the Company.  

DISCLOSURE  

Appropriate disclosures, in line with the SBR-MD, regarding this Interest Rate Policy will be made on the Company website.  

POLICY REVIEW 

This Interest Rate Policy will be reviewed and updated at least once a year to reflect any necessary changes and be approved by Board. 

Notwithstanding anything contained in this Policy, in case of any contradiction of the provision of this Policy with any existing legislations, rules, regulations, laws or modification thereof or enactment of a new applicable law, the provisions under such law, legislation, rules, regulation or enactment shall prevail over this Policy