The Reserve Bank of India had, via its Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (‘Master Directions’), advised NBFCs to adopt an interest rate model taking into account various relevant factors and determine the rate of interest to be charged for loans and advances. Accordingly, Shriram Finance Limited (“SFL” 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.

In line with the Master Directions, this Interest Rate Policy (“Policy”) shall define the parameters for determining interest rates for different categories of borrowers.

The interest rate charged by the Company for loans and advances is on a fixed rate basis. With reference to the Company’s approach for gradations of risk and rationale, the rates of interest for the same product and same tenor availed during the same period by different customers could vary depending upon the combination of various factors such as borrower’s profile including age, 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 and type of collateral security, brand/resale value of the vehicle, past repayment track record, past association with SFL, credit score, loan to value, etc.

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.

Risk Premium: The risk premium (estimate of credit losses) shall be determined by taking into account the minimum margin the Company wants to maintain along with the degree of risk involved in the 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 lower for customers perceived as having lower credit risk and higher for the high credit risk category.

The Company shall charge an annualized interest rate on loans and advances extended to customers. The annualized interest shall be communicated explicitly in the sanction letter as well as the loan agreement. Any revision/change in the interest rate/other charges would be effected 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 installment or a structured repayment. The Company may alternatively offer a scheme by which the interest needs to be serviced month on month or on a 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 a 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%.

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.

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 interest, swapping charges, rescheduling charges, part-disbursement charges, prepayment charges, collection charges, seizing/repossession charges/expenses, statutory charges, auctioning charges, legal expenses, etc. shall be levied by the Company from time to time. In addition, applicable GST and other cess on the fees and charges shall be collected at the applicable rates from the customers. 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 effected prospectively 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.

Where there is a delay in remittance of installments, the Company shall charge penal charges at the rate of 36 percent per annum without capitalizing it, on the installments outstanding. This would be in addition to the interest charged at the contracted rate of interest on the balance outstanding which would include the EMI (including the interest), insurance payments if any, debited to the account, repossession, and legal expenses debited at actuals. 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.

The Company may charge a flat amount up to Rs.1000 per instance of cheque/ Automated Clearing House (ACH) / Electronic Clearing System (ECS) bounce for various loan products.

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 varied 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.

The Company operates in a competitive environment and to cover the cost of acquisition, restricts 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 the 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 State Head / Zonal Branch Head (ZBH) / Executive Director/ Joint Managing Director (JMD) / Managing Director (MD), 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 the 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.

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, or foreclosure charges are at the sole discretion of the Company. The authorized 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.

Note: In case of LAS/LAMF products, the waiver of charges if any shall be approved as per the Approval matrix as provided in the LAS policy.

The Asset Liability Management Committee (ALCO) shall be meeting periodically and reviewing 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 ALCO shall be implemented by the Company, prospectively.