1. Background

Reserve Bank of India had vide its Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 advised NBFCs to adopt an interest rate model taking into account various relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. Accordingly, Raghava Asset Finance Private Limited (“RAFPL” or “Company”) has framed the Interest Rate Policy. The Master Directions further advised that the rate of interest and the approach for gradations of risk and rationale for charging different rates of interest to different categories of borrowers shall be disclosed to the borrower/customer in the application form and communicated explicitly in the sanction letter.

2. Objective

The objective of this policy is to define the parameters for determining interest rates for different categories of borrowers/products/segments.

3. Approach To Gradation Of Risk & Interest Rate Model

3.1Interest Rates

The interest rate charged by the Company for loans and advances is on a fixed rate basis. The rate of interest is arrived at based on a comprehensive approach to gradation of risk based on demography, the profile including age, the cost of funds, margin, risk premium, external ratings, cash flow, track record, number of dependents, residential stability, type of employment and length of service, primary and secondary income, vintage and growth in business (if self-employed), nature type and brand/resale value of collateral if any, loan to value, future potential, tenure, competition, industry trends, , past association with RAFPL guarantees and credit risk. The rate of interest applicable to a loan may therefore vary from one customer to another and may also vary for the same customer when fresh loan is extended over a period of time, taking into consideration the combination of the above parameters, the market information, the field report and the information provided by the borrower.

The lending interest rate will be arrived at based on the following:

i.Cost of Borrowing:

The first element in calculation of the interest rate is the cost of borrowing of the Company, which is the interest and other incidental charges payable by the Company for servicing the borrowed funds deployed by the Company.

ii.Return on Capital Employed:

The second element is the expected return on capital employed which is to be generated by the Company for servicing the owners’ capital employed in the business.

iii.Overhead Costs:

The third element is the overhead/sourcing cost incurred for sourcing and processing the loan application including, but not limited to employee costs, office expenses, insurance premium, if any, marketing expenses etc.

However, the rate arrived based on the aforementioned elements shall be adjusted based on the risk profile of the borrower by factoring in a risk premium, which may be an addition or subtraction from such rate. The manner of computation of risk premium shall be as follows:

Risk premium (estimate of credit losses): Shall be determined by taking into account the minimum margin the Company wants to maintain along with degree of risk involved in loan considering various factors like general economic conditions, customer category, customer category servicing costs, repayment capacity, mode of repayment, past repayment history, loan-to-value ratio, tenure of loan, location of the customer, nature of security, etc. The rate shall be the lower for customers perceived as having lower credit risk and higher for the high credit risk category.

The Company shall be charging an annualised interest rate on loans and advances extended to customers. The annualised interest shall be communicated explicitly in the KFS, sanction letter as well as the loan agreement. Any revision/change in the interest rate/other charges would be affected prospectively only.

In case of term loans, the interest shall be amortized with the principal and the monthly due shall be repaid by way of installments. The Company may offer an equated monthly instalment or a structured repayment. The Company may alternatively offer a scheme by which the interest needs to be serviced month on month or on quarterly basis and the principal repaid at the end of the tenure. The repayment of both the principal and interest may also be offered on “Bullet Payment” at the end of the tenure. The interest for the month shall be computed based on the actual number of days in a month and compounded monthly.

The interest rates proposed for different loans and advances extended by the Company to its borrowers, are given in Annexure 1. However, in case of co-lending arrangement wherein the cost of acquisition is borne by the co-lending partner, the rate of interest charged on the Company’s loan exposure may be lower and rates specific to co-lending have been prescribed under Annexure 1. Any deviation up to 3 percent from the above may be approved by a person not below the rank of Zonal Business Head/ Region Head/ State Head. Any deviation in excess of 3 percent shall be approved by the JMD. The returns to the company inclusive of processing fee / document charges shall not however be less than 10%.

Further in case where subvention received from the OEMs or discount received from the dealers and passed on to the customer (by way of lower Interest rate), the rate of interest charged to the customer may be lower than the minimum threshold limit specified in the policy. In those cases, interest rate deviation is to be calculated by adding above subvention/discount to the interest rate charged to the customer.

Part pre-payment/advance payment: Where a customer remits the dues in advance or where part pre-payments are made, the Company may grant the benefit of interest arising out of early payment, by accepting settlement of the loan account at the contracted IRR.

3.2Other Charges

The Company may charge processing fees to cover the cost of sourcing/acquisition, field verification, credit appraisal etc. Other fees/charges such as legal fees, valuation fees etc. shall be charged to customers separately. Similarly, other charges such as mandate registration charges, cheque bouncing charges, overdue / penal charges, swapping charges, rescheduling charges, part-disbursement charges, foreclosure charges, collection charges, seizing/repossession charges/expenses, statutory charges, auctioning charges, legal expenses etc. shall be levied by the Company from time to time. Besides the above charges, GST (wherever applicable) would be collected at applicable rates from time to time. All such charges shall be clearly mentioned on the website and the customer may refer to the website for details of charges

Any revision in these charges shall be given prospective effect only and the same shall be communicated to customers. The broad range for charging the above referred fees/ charges/ expenses are indicated in Annexure 2 of this Policy.

Any deviation in processing fee up to 5 percent from the above may be approved by a person not below the rank of Zonal Business Head/Region Head/ State Head.

3.3Penal Charges

Where there is a delay in remittance of instalments, the Company shall levy penal charges at the rate 36 percent per annum on the instalments in arrears without capitalising it. The Company may levy penal charges on unpaid insurance premium and other expenses, if any, debited to the account. Further, the levy of penal charges does not prevent the Company from taking any legal action and repossessing the asset by issuing a notice to the borrower.

3.4Cheque Bouncing Charges/Bank Charges

The Company may charge a flat amount up to Rs.500 per instance of cheque/ Automated Clearing House (ACH) / Electronic Clearing System (ECS) bounce for various loan products.

3.5Foreclosure Charges

Where a customer proposes to foreclose a loan account (in the absence of any lock-in-period), the Company shall levy foreclosure charges as detailed in Annexure 3. The Company may also charge an additional 2 percent on the principal outstanding if the loan is proposed to be taken over/closed from borrowed funds. The foreclosure charges may however be waived by a senior executive not below the rank of a State Head/Zonal Business Head/Region Head. The State Head or the Zonal Business Head/Region Head may delegate this power for ease of operations.

3.6Lock-in period

The Company operates in a competitive environment and to cover the cost of acquisition, restrict foreclosure of the loan account in certain cases as negotiated with the customer at the time of sanction. The Company may restrict foreclosure of a loan by not more than 12 months from the date of first EMI due. The Company at its sole discretion, may sanction the loan with a lock-in period as proposed above.

While the Company does not in the normal course permit foreclosure of the account during the lock-in-period, the Company may on approval of the Branch Managers (BM), Regional Business Head (RBH) or equivalent role and Zonal Business Head/ JMD/DMD/ Central Credit Committee permit the customer to foreclose the loan account during the lock-in-period and in which case, the Company may propose to charge up to 4 percent over and above the applicable rate immediately succeeding the lock-in-period, and on acceptance by the customer, permit waiver of the lock-in period. Approval to permit foreclosure during lock in period shall be at the sole discretion of the Company as it is a change to the terms of the loan agreement accepted by the Customer.

4. Intimation / Communication To Borrowers

The Company shall intimate the borrower the loan amount, annualized rate of interest and method of application thereof at the time of sanction of the loan along with the tenure and terms of repayment. In case of loan facilities with moratorium on payment of principal and/or interest, the exact date of commencement of repayment shall also be specified in the loan agreements.

Requests for waiver of charges/ penal charges / additional interest/ bank charges / foreclosure charges are at the sole discretion of the Company. The authorised person, as specified in the Product-wise Exposure Matrix in the Master Credit Policy, may partly or fully waive these charges, and the decision of the Company is final in this regard.

6. Review The Policy

The Board shall be meeting periodically and review the interest rates based on various factors and situations prevailing at the time of such review, including market volatility and cost of funds. The revised interest rates, as reviewed and determined by the Management, shall be presented to the Board for approval. Upon approval by the Board, the company shall implement the approved rates prospectively.