Interest Rates and Gradation of Risks
Reserve Bank of India vide its notification No DNBS. 204/CGM (ASR) – 2009 dated January 2nd 2009 and vide its guidelines on FPC for NBFCs DNBS. CC.PD. No 266/03.10.01/2011-12 dated 26th March 2012 have directed all NBFCs to communicate the annualized rate of Interest to the borrower along with the approach of gradation of risk and rationale for charging different rate of interest to different categories of borrowers, make available the rates of interest and the approach of gradation of risks on the website of the companies.
The Company intimates the borrower, the loan amount and rate of interest at the time of sanction of the loan along with the tenure and amount of monthly installments.
Rate of Interest - Two wheeler loans
Approach for Gradation of Risk:
The rate of interest is arrived at based on the weighted average cost of funds, administrative cost, risk premium and profit margin. The decision to give a loan and the interest rate applicable to each loan account is assessed on a case to case basis, based on multiple parameters such as the type of asset being financed, borrower profile and repayment capacity, borrower’s other financial commitments, past repayment, tenure of the loan, geography (location) of the borrower, end use of the loan as represented by the underlying asset etc. Such information is collated based on borrower input, credit bureau and field inspection by the Company officials.
In view of the higher risks associated with the two wheeler loans and shortfall in asset value to cover the dues in case of a forced sale arising from defaults, the interest rate in this type of loan are comparatively high.
The rate of interest is subject to change as the situation warrants due to market compulsions and change in regulatory norms and is subject to the discretion of the management on a case to case basis.