REVISED IN THE MEETING OF BOARD OF DIRECTORS HELD ON 29.09.2020

Introduction

Reserve Bank of India (RBI) had vide its circulars advised that Board of Directors of Non-Banking Finance Companies (NBFC) shall lay out appropriate internal principles and procedures in determining interest rates, processing and other charges. RBI has advised NBFC's to adopt appropriate interest rate model taking into account relevant factors and to disclose the rate of interest, gradations of risk and rationale for charging different rate of interest. Keeping in view the RBI's guidelines as cited above, and the good governance practices being followed by S M L Finance Limited (the ‘Company’), the following internal guidelines, policies, procedures and interest rate model have been adopted by the Board of Directors of the Company, for its lending business. These need to be taken cognizance of while determining interest rates and other charges, and changes thereto.

Methodology

The interest rates for the products of the Company are decided by the management. The average yields and the minimum rate of interest for each loan product are decided from time to time, giving due consideration to the following factors:

• The weighted average cost of borrowed funds as well as costs incidental to those borrowings, taking into consideration the average tenure, interest rate, maturity pattern and liquidity. The Borrowed Funds of the company being in the nature of:-
• Non-Convertible Debentures
• Subordinated debts
• Working capital Facilities from Banks
• Term loans from Banks
• Term loans from other institution
• ICD from other companies


• Minimum margin of profit
• Cost of servicing the equity capital.
• Operating and administrative cost in the business.
• Inherent credit and default risk in various loan portfolio of the company’s business.
• Risk profile of each customer: qualification, income earned in past years, earning stability and employment, past repayment track record with the Company or other lenders, external ratings of customers, credit reports, customer relationship, future business opportunities etc.
• Nature and value of collateral securities.
• Industry trends and competition.

Interest rate policy for lending business

• The Company follows a discrete interest rate policy wherein the rate of interest for same product and tenure availed during the same period by separate customers would not be standardized but could vary within a range, depending, amongst other things, the factors mentioned above.

• The interest rates offered could be on Fixed basis or Floating/variable basis. Changes in interest rates would be decided at any periodicity, depending upon market volatility and competitor review.

• Interest would be charged, and recovered on a monthly basis. Specific terms in this regard would be addressed through the credit policy.

• Interest rates would be intimated to the customers at the time of sanction/ availing of the loan and the EMI apportionment towards interest and principal dues would be made available to the customer.

• Besides normal interest, the Company may levy additional interest, penal interest in accordance with Fair practices Code for any delay or default in making payments of any dues. The levy or waiver of these additional or penal interests for different products or facilities would be decided by the Board of Directors.

• Interest changes would be prospective in effect and intimation of change of interest or other charges would be communicated to customers in a manner deemed fit, as per terms of the loan documents.

• Besides interest, other financial charges like processing fees, pre-payment/ foreclosure charges, documentation charges, etc. would be levied by the Company in accordance with Fair Practices code wherever considered necessary. Besides the base charges, the taxes at applicable rates may be collected from time to time. Any revision in these charges would be with prospective effect. These charges would be decided by the board of directors of the Company.

• The practices followed by competitors would also be taken into consideration while deciding on interest rates/ charges.

• Claims for refund or waiver of such charges/ penal interest/ additional interest would normally not be entertained by the Company and it is the sole and absolute discretion of the Company to deal with such requests.

• Annualised rate of interest to be charged to borrowers, at the time of sanctioning loans, shall be in the range of 12% p. a. (lower limit) to 32% p. a. (upper limit).

Annualized Rate Of Interest Matrix & Interest Rate Waiver Approval authority Matrix

1. In Case of Vehicle loan ( Annualised Interest Rate)

PRODUCT	NEW 2W Loans	New 3W Loans	New Car & 4W Loans	Used 2W Loans	Used 3W Loans	Used Car & 4W Loans
Annualised Rate of interest	24%	24%	18%	24%	30%	24%
Interest Rate Waiver Approval authority matrix
MD	5%	5%	5%	5%	5%	5%

2. In Case of Gold loan ( Annualised Interest Rate)

PRODUCT SCHEMES	LTV 75%
Annualised Rate of interest	16-20%
Interest Rate waiver in case of Gold loans up to 3% by MD

3. In Case of Other loans ( Annualised Interest Rate)

PRODUCT	Property Loan	Personal Loan	Business Loan	Demand Loan	Consumer Durables Loan	MSME - Loan amount Rs. 46,000
Annualised Rate of interest	30%	26%	30%	30%	26%	31.74%
Interest Rate Waiver Approval authority matrix
MD	5%	5%	5%	5%	5%	5%

4. In Case of Micro finance Loans

The interest rates fixed for micro finance loans shall be determined at the beginning of each quarter in accordance with RBI Guidelines. Accordingly, the quarterly interest rate fixed by the Company shall be lower of the following:

1. Cost of funds plus margin of 12%(asset size more than Rs. 100 cr -10%); OR
2. Average base rate of the five largest commercial banks multiplied by 2.75%

Gradation of risk

The rate of interest is arrived based on the weighted average cost of funds, administrative costs, profit margin, multiple risk parameters such as borrower profile, past year earnings, earning stability, employment stability and repayment capacity, type of loan, scheme of loan, rate of competitors etc. The decision to give a loan is also based on the above factors These informations are collected based on borrower’s inputs, credit bureau and field inspection by the company officials. The Interest rates are subject to change as the situation warrants and are subject to management decision based on the merit of individual cases

Processing/ documentation and other charges

All processing/ documentation and other charges recovered shall be expressly stated in the Loan policy, FPC and loan documents. They vary based on the loan product, schemes & exposure limit, and generally represent the cost incurred in rendering services to the customers. The practices followed by other competitors in the market would also be taken into consideration while deciding the charges.