INTEREST RATE POLICY

Summary of Policy

Policy Name DMI Finance Private Limited – Interest Rate Policy
Related policies and regulations RBI Guidelines
Issue date April 2011
Effective date April 2011
Date of last review May 2016
Date of next review May 2017
Owner / Contact DMI Finance Private Limited
Approver Board of Directors of DMI Finance Private Limited
Annexures None
Appendices Appendix A – Policy Review History

 

PREAMBLE

Though interest rates  are  not  regulated  by  the Reserve Bank of India (‘RBI’),  rates  of  interest  beyond  a certain level and not commensurate to the risks undertaken for the particular transaction may be seen to be excessive and can neither be sustainable nor be conforming to normal financial practice.

Given  that  the  business  model  of DFPL focuses  on extending  the  loan  only  to select well  known customers/corporate  borrowers across  tenor  bands,  the fixed interest  rate (comprising the  aggregate running coupon and that, if any, payable on redemption) charged shall be in the band of 14% to 25%per annum (excluding upfront  or  back  ended fee and  variable  redemption  /  equity  upside  for  structured transactions) based on the evaluation of various risks detailed hereunder:

1. ESTABLISHING AN INTEREST RATE

The interest rate applicable to a loan will be determined by as per below mentioned schedule

Category of borrowerTenure of LoanRate of Interest/Coupon Rate*
Corporate Borrower    
Real Estate    
Term Loan 3 - 5 years  14% - 25%
NCD’s 2 - 5 years
     
Non - Real Estate    
Term Loan 3 - 5 years  14% - 21%
NCD’s 2 - 5 years
     
 HNI Borrower    
 Term Loan  2 - 4 years  14% - 21%
     
 Individual Borrowers(including employees) * *    
 Home Loan  Upto 20 years  10% - 15%
 Loan Against Property  Upto 15 years  12% - 18%

 

Interest Rate Criteria for Corporate Borrowers:

The interest rate will depend on the following factors:

1. Credibility of the promoters

2. Type and No. of projects being developed by the borrower

3. Cash flows of the borrower and its group companies

4. Tenure of loan,

5. Credit history of the borrower,

6. Security  offered  by  the  borrower  i.e.  Real  Estate  or  Shares,  Personal  or  Corporate Guarantee or any other security as may be considered fit by the company.

7. All other aspects as the management may deem fit

Interest Rate Criteria for HNI Borrowers:

The interest rate will depend on the following factors:

1. Income of the Borrower,

2. Tenure of loan,

3. Credit history of the borrower,

4. Security offered by the borrower i.e. Real Estate or Shares

5. All other aspects as the management may deem fit

Interest Rate Criteria for Individual Borrowers:

1. Credit history of the borrower,

2. Tenure of loan,

3. Salary/Business Income

4. Property Type

5. Age of Borrower

6. Family Background

7. All other aspects as the management may deem fit

*There  can  be  a  deviation  of  1% - 3%  in  the  rate  of  interest  to  be  charged  from  the  borrower. The same is subject to approval of the Joint Managing Directors.

**Employee loans are linked to SBI Base rate as issued on April 01 every year for the purpose of perquisite taxation

Consumer Loans

The company has started distributing consumer loans as well to individuals and is in the process of  a forming  a separate  Consumer  loans  policy.  The  policy  shall  lay  out  the  details  of  risk assessment and the rate of interest to be charged as and when adopted by the Board.

a). Costs  of  Funds - The  rate  of  interest  charged is  also affected  by  the  rate  at  which the  funds necessary to provide loan facilities to customers are source normall refer red to as internal cost of  funds. All  loans  or  credit  facilities  should,  at  minimum,  provide  an  Internal  Rate  of  Return (‘IRR’)  or  a  life  to  maturity  yield  of 15%. From  an  external  cost  of  funds  perspective,  the benchmark interest rate that may be used by DFPL could be either the Base Rate of India or the 10 - year Government of India bond as adjusted for the rating spreads available in the markets.

b). Internal  cost loading - The  interest  rate  charged will also  take into  account  costs  of  doing  business.  Factors  such  as  the  complexity  of the  transaction,  the  size  of the  transaction and  other factors  that  affect  the  costs  associated  with  a  particular  transaction should be taken  into  account before arriving at the final interest rate quoted to a customer.

C). Credit Risk - As a  matter  of  prudence, bad  debt  provision  cost should  be  factored into all transactions. This  cost  is  then  reflected  in  the  final  interest  rate  quoted  to  a  customer. The amount  of  the  bad  debt  provision  applicable  to  a  particular  transaction  depends  on  the  credit strength of the customer.

Further various methods mentioned below are used for evaluating credit risk by the company:

Credit Risk Evaluation for Corporate Borrowers:

The credit risk for Corporate Borrowers is evaluated after taking into consideration the following factors:

1. Debt/Equity ratio,

2. Interest Coverage Ratio,

3. Debt Service Coverage Ratio,

4. Track record with other lenders

5. Market Value of assets owned by the Group

6. Security Cover

7. Any other factor depending on case to case basis

D). Fixed  versus  floating – the  applicable  interest  rate  shall  also  be  commensurate  from  the perspective of the fixed versus floating interest rate requirements of the customers and shall have to be decided in view of the benchmarks deliberated above.

2.PENAL INTEREST/ADD ON INTEREST

DFPL will charge a penal interest/add on interest shall range between “5% to 10%" or a lower amount as may be mutual agreed with the borrower.

3.PROCEDURAL ASPECTS

A. DFPL shall cmmunicate to the customer;

a)  the  amount  of  loan  sanctioned  along  with  the  terms and  conditions  including  annualised  rate  of interest,

b)  details  of  the  default  interest  /  penal  interest  rates and  the  charges  payable  by  the  customers  in relation  to  their  loan  account  and  method  of  application  thereof  and (penal  interest  charged  for late repayment of loan would be mentioned in bold in the loan agreement)

c)  Terms  and  conditions  and  other  caveats  governing  the  credit  given  by DFPL arrived  at  after negotiation

d)  In  case  of  any  change  in  any  of  the  terms  and  conditions  /  caveats  /  any  information  which  is relevant from the point of view of the transaction (including annualised rate of interest), the same shall   be   conveyed   to   the customer either as   an   addendum   /  additional   annexure   to   the agreement /term  sheet.  However  all  the  relevant  formalities  (e.g.  further  legal  documentation, approval  of customer,  certification  of DFPL officials  etc.) relating to such  change shall  be documented  and  a  copy  of  the  same  shall  also  be  sent  to  the customer. The  same  may  be communicated through electronic media or any other form of communication by the employees of DFPL. The  acknowledgement  of  the  receipt  of  the  said  additional  document  shall  also  be preserved on the records by DFPL officials.

All the above information shall be in writing / electronic media or any other form of communication by the employees of DFPL and shall be duly approved by the customer and certified by the authorised official of DFPL and would be documented in a chronological manner for future reference.

B. Content on the website

The interest rates shall be displayed on the company website, if any, as per the RBIdirections.