Risk based Pricing- Gold loans
A. Guiding principles of fixing interest rate
The rate of interest on gold loan schemes shall be "FIXED" Rate type which means that the rate for an existing customer shall not change during the entire tenor of loan. The final pricing takes into account various factors such as cost of funds, risk premium, operating cost, fair return on capital deployed, market conditions including any guideline of Reserve Bank of India regarding Fair Practices Code.
1. Cost of Funds
This component shall represent the interest and other incidental charges payable by the Company for servicing the borrowed funds which are mobilized through various sources like loans etc. Major components include interest on bank borrowings and other incidental charges thereto.
2. Operating Cost
Operating cost shall comprise of employee cost, establishment costs such as charges for rent, electricity, water etc., security charges such as engagement of security guards, setting up of burglar alarms and CCTV cameras, insurance premium for insuring the gold security held in the custody of the Company etc., Statutory expenses, Marketing expenses etc.
3. Risk Premium
Risk premium shall be determined by taking into account the degree of credit risk involved in loans under each loan scheme. The tenure period of the loan shall be one of the key risk factors as the probability of risk incidents goes up with the passage of time. Hence, for monthly EMI scheme, the rate of interest shall be lower for tenor of 12 months as compared to tenor of 24 months.
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Effective Interest rates on gold loans shall also vary depending upon the rebate offered for periodical remittance of the interest under bullet scheme, wherein a rebate shall be given to those who service the interest earlier then the schedule fixed at the time of disbursal. For e.g., higher rebate shall be offered to those servicing interest within 30 days of disbursal as compared to 60 days, 90 days and so on. The rebate comes down and resultantly the interest rate goes up if interest is not serviced by the scheduled dates prescribed like 30/60/90 days etc. after availing the loan. The rebate is offered to encourage borrowers to service interest regularly within the prescribed slab periods and to avail the benefit of higher rebate and lower competitive interest rates. The rebate is only an offer and it is left to the choice of the borrower whether to avail the benefit or not. If customer does not opt for the said rebate in such schemes, company shall charge interest as per the terms and conditions of the loan mutually agreed to by the borrower who has signed the pledge form and loan agreement/Other terms and conditions of the loan.
Example: For example, if a bullet scheme sanctioned at rate of interest of say 24%. p.a. is offering a rebate of say, 12.1% for servicing interest within 30 days, interest @ 11.9% only will be charged if interest is paid within say, 30 days from the date of disbursal or next date from last interest payment date, whichever is later. However, if the customer does not service interest by 30 days after availing the loan, he will lose the advantage of the higher rebate and accordingly, the rebate rate will move to the next lower slab resulting in a corresponding higher interest rate being charged from the loan origination date and customer has to pay interest accordingly.
4. Fair return on Capital Employed
Fair return on capital shall be calculated as per industry standards.
5. Method of Calculation of Interest
The interest shall be calculated for the actual number of days the loan remains outstanding.
- For the purpose of interest calculation, a year will be reckoned as 365 days.
- The interest will be calculated basis Simple Interest method.
- The interest shall accrue on daily basis though payable as per the demand generated basis repayment schedule under each scheme.
B. Processing Fees, Other Charges & Penal Charges
1. Processing Fees & Other charges (other than Penal charges)
Besides interest, other financial charges like processing fees, prepayment/ foreclosure charges, charges on various other services like SMS charges etc. would be levied by the company wherever considered necessary. Any revision in these charges for existing loan would be with prospective effect and after informing the borrower atleast 30 days in advance. A suitable condition in this regard would be incorporated in the loan agreement.
2. Penal Charges:
- The company shall levy a reasonable penalty for non-compliance of material terms and conditions of loan contract including late payment of dues by the borrower and such charges shall be treated as 'penal charges' and shall not be levied in the form of 'penal interest' i.e. such charges shall not be added to the rate of interest charged on the advances.
- There shall be no capitalization of penal charges i.e., no further interest computed on such charges.
- The quantum of penal charges shall be reasonable and commensurate with the non-compliance of material terms and conditions of loan contract without being discriminatory within a particular loan/product category.
- The penal charges in case of loans sanctioned to 'individual borrowers, for purposes other than business', shall not be higher than the penal charges to non-individual borrowers for similar non-compliance of material terms and conditions.
- The quantum and reason for penal charges shall be clearly disclosed to the customers in the loan agreement and most important terms & conditions/Key Fact Statement (KFS), in addition to being displayed on the company's website.
- Whenever reminders for non-compliance of material terms and conditions of loan are sent to borrowers, the penal charges shall be communicated.
- Further, any instance of levy of penal charges and the reason therefor shall also be communicated.
- The above policy on Penal charges shall be implemented in respect of all the fresh loans availed/all existing loans renewed from April 01, 2024 onwards. In the case of existing loans, the switchover to new penal charges regime shall be ensured on next review or renewal date falling on or after April 01, 2024, but not later than June 30, 2024.
