Interest Rate Policy
A. BACKGROUND, SCOPE, OBJECTIVES AND APPLICABILITY
1. Background
REFYNE Finance Private Limited (“Company”), has been granted registration as a Non-Banking Financial Company (“NBFC”) by the Reserve Bank of India (‘RBI’) under the Section 45-IA of the Reserve Bank of India Act, 1934.
The Company, as a base layer NBFC, is required to comply with the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023. Under Chapter VII of the RBI Directions, guidelines with respect to Fair Practice Code has been provided. In accordance with clause 45.12 under Chapter VII of the RBI Directions, boards of NBFCs shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges.
In pursuance to the above regulatory requirements, the Company, being an NBFC, shall adopt this ‘Policy for Determining Interest Rates and Charges’ (“Policy”).
2. Scope and Objective of the Policy
The objective of this Policy is to define a framework to transparently determine rate of interest, gradations of risk, fee and charges which are applicable to its borrowers.
3. Applicability
The Policy shall be effective from the date of its approval by the Board, and it shall be applicable to lending activities of the Company.
B. POLICY STANDARDS
4. Broad Range of Interest Rates Applicable on the Lending Business
The range of interest rates applicable to the Company’s loan products shall be computed considering the cost of funds, credit costs, operational expenses, and other administrative costs.
5. Cost of Funds
The cost of funds will depend on the different types of funding sources availed by the Company to fund its lending business. Various sources will consist of equity, bank loans, debentures, commercial papers and other market instruments. Cost of funds will vary from 10%-15% as per the prevailing market standards.
6. Range of Interest Rates on Specific Loan Product or a Category of Borrowers
The range of interest rates for a category of borrowers or a loan product shall factor various elements like the Company’s cost of funds, credit risk premium for the product, tenor premium, sourcing cost, operating cost, margin & interest rate trend prevailing in the market for the specific borrower category/ product. Thereafter, gradations of risk will further determine the specific rate applicable to a customer.
7. Gradations of Risk
Based on gradations of risk, the Company may charge different rates of interest to different categories of borrowers. Key factors which may be used in gradation of risk for deciding the rate of interest applicable to a specific borrower are as under:
(a) Risks associated with the borrower’s employment/ business.
(b) Type, nature, vintage/ experience, profile of the borrower.
(c) Vintage of the Company’s relationship with the borrower, repayment track record of existing borrower, credit history of the borrower available from various sources.
(d) Purpose of the loan.
(e) Existing and expected/ projected financial position of the borrower, sustainability of cash flow of the borrower.
(f) Historical performance of homogenous pool of similar borrowers and credit default risk in the similar loan category and business segment.
(g) Nature and value of primary collateral and additional security.
(h) Tenure of the loan.
8. Interest Rates
Interest Rates would be fixed in nature. The borrowers are categorized into different risk buckets based on several factors such as customer’s nature of employment, bank statement analysis, income assessment, overall customer credit score and education profile, etc. Employers are categorized into different risk buckets (A+ to D) based on vintage, segment, accreditation, size, past performance, financial health, etc. The rate of interest applicable to each loan product is determined based on a risk assessment of the borrower and the associated institution. Specific interest rates, along with applicable processing fees and other charges, are disclosed for each loan product in Annexure-1 of this Policy. The effective annualized reducing interest rate falls within reasonable ranges, subject to the nature of the loan product and the risk profile of the borrower.
9. Penal Charges
As a deterrent against delinquency and to encourage timely repayment and adherence to the repayment terms, the Company may levy penal charge as per the terms and conditions agreed with the borrower.
10. Other Charges
The Company, wherever considered necessary, may levy various other financial charges like processing fees, cheque bouncing charges, late payment charges, prepayment/ foreclosure charges, part disbursement charges, cheque/ repayment instrument swap charges, security swap charges, charges for issuance of a statement/ document/ copy of document, re-schedulement charges etc. subject to the regulatory restrictions, if any. The Company shall disclose the applicable charges to its customers.
11. Variation in Applicable Charges
Certain charges may vary from customer to customer depending on loan product, borrower category, credit history of customer, type of security offered, expenses incurred in sourcing of business, geographical location and cost incurred in rendering service to the customer etc.
12. Disclosure of Interest Rates, Processing Fee, and other Applicable Charges
The Company through sanction letter, key fact statement (KFS) and loan agreement shall convey annualized applicable rate of interest, processing fee and other charges to the borrower.
(i) Sourcing Costs at the time of the application:
a. These costs are incurred by the Company before the customer takes his loan disbursement and will be covered through the charges deducted or collected from the disbursement amount. These costs include acquisition, verification, legal & valuation, credit appraisal etc.
b. All processing /documentation and other charges recovered are expressly stated in the loan execution documents. They may vary based on the loan product, exposure limit, customer segment, geographical location of the customer etc.
c. In the event of cancellation of loans at the behest of the customer or due to insufficiencies identified in the details submitted by the customer, the Company shall have the right to levy cancellation charges on the customer due to the cost incurred by the Company. The Company shall not levy processing fees for customers to whom cancellations charges are levied. In case, processing fees has been paid by the customer, the same shall be set off from the cancellation charges.
(ii) Costs incurred during the tenure of the loan:
a. Besides interest, other financial charges such as cheque bouncing charges, cheque swaps, cash handling charges, RTGS/other remittance charges, commitment fees, charges on various other services or such other charges as may be communicated/ intimated to the customer through the sanction letter/ loan agreement would be levied by the Company wherever considered necessary or through any other mode thereafter.
b. Besides these, statutory charges such as the goods and service tax and other cess would be collected at applicable/ prevailing rates from time to time. Any revision in these charges would be with prospective effect. These charges would be decided collectively by the management of the Company.
c. Penalties levied on the Customer
▪ Penalty, if charged, for non-compliance of material terms and conditions as defined in the loan contract with the borrower shall be treated as 'penalties’ or ‘penal charges’. These penalties shall also cover charges levied on the customer for delay in payment of their overdue EMI.
▪ In case of existing loans, the instructions laid out in the RBI Fair Lending Practice - Penal Charges in Loan Accounts shall come into effect from April 1, 2024 and the switchover to new penal charges regime shall be ensured on the next review / renewal date falling on or after April 1, 2024, but not later than June 30, 2024.
▪ Additional penal charges cannot be levied on the earlier outstanding amount of penal charges.
▪ There shall be no capitalisation of penalties i.e., no further interest computed on such charges.
▪ The Company shall not introduce any additional component to the rate of interest.
▪ The quantum of penalties shall be reasonable and commensurate with the noncompliance of material terms and conditions of loan contract without being discriminatory within a particular loan / product category.
▪ The penalties in case of loans sanctioned to 'individual borrowers, for purposes other than business', shall not be higher than the penal charges applicable to non-individual borrowers for similar non-compliance of material terms and conditions.
▪ The quantum and reason for penalties shall be clearly disclosed by Company to the customers in the loan agreement and most important terms & conditions / Key Fact Statement (KFS) as applicable, in addition to being displayed on Company’s website.
▪ Whenever reminders for non-compliance of material terms and conditions of loan are sent to borrowers, the applicable penalties shall be communicated. Further, any instance of levy of penalties and the reason thereof shall also be communicated.
▪ Requirements mentioned in this clause shall be applicable in respect of all the fresh loans availed / renewed from January 01, 2024. In the case of existing loans, the switchover to new penalties shall be ensured on next review or renewal date or six months from the effective date, whichever is earlier
(iii) Charges applicable at the time of closure of the loan - These will include pre‐payment & foreclosure charges subject to RBI guidelines, repossession and other legal expenses related to recovery of over dues.
(iv) The Company shall levy the charges in accordance with the agreements executed with the customer/any subsequent changes as communicated.
(v) W.e.f October 1, 2024, charges recovered from the borrowers by the Company on behalf of third-party service providers on actual basis, such as insurance charges, legal charges etc., shall also form part of the Annual Percentage Rate (APR) and shall be disclosed separately. In all cases wherever the Company is involved in recovering such charges, the receipts and related documents shall be provided to the borrower for each payment, within a reasonable time. Annual Percentage Rate (APR) is the annual cost of credit to the borrower which includes interest rate and all other charges associated with the credit facility.
(vi) W.e.f October 01, 2024, any fees, charges, etc. which are not mentioned in the Key Fact Statement, cannot be charged by the REs to the borrower at any stage during the term of the loan, without explicit consent of the borrower. Key Facts Statement (KFS) is a statement of key facts of a loan agreement, in simple and easier to understand language, provided to the borrower in a standardised format.
All charges and any revisions thereof are approved by the Director as a part of the product manuals or separately. Such changes/ revisions thereof shall also be submitted to the Board in the subsequent Board meeting.
C. AUTHORITY
i) The Board shall have authority to define/ review/ revise the Company’s benchmark floating reference rate, if any.
ii) The Board shall have the authority to define/ review/ revise the range of rates of interest applicable on various types of loans extended by the Company.
D. REVIEW OF THE POLICY
This Policy shall be reviewed, with the approval of the Board of Directors, once a year or earlier if required by the applicable rules and regulations.
Rate of Interest, Processing Fees, Other Fees & Charges
Notes: ** Rate of Interest - Between 32% and 40% IRR — will be used to explore the credit worthiness of new segments and will not exceed 5% in terms of sourcing or AUM.
1. As per Article 6 of the Karnataka Stamp Act, a stamp duty of 0.1% is applicable on loan agreements. The minimum stamp duty payable by the borrower in Karnataka is ₹500.
2. A 7-day cooling-off period will be provided to customers across all loan products. This allows borrowers time to reconsider their decision without incurring any penalties.
3. All the fees and charges stated are inclusive of applicable taxes, including Goods and Services Tax (GST)
4. No other charge is being charged form the customers.
