INTEREST RATE POLICY OF B P SECURITIES (INDIA) PRIVATE LIMITED (“BPS”)
SUMMARY OF THE POLICY
| Document Name | Interest Rate Policy |
|---|---|
| Issue and Effective Date | 25/04/2024 |
| Date of Next Review | 26/04/2026 |
| Periodicity of Review | Annual |
| Owner / Contact | Credit Department |
| Approver | Board of Directors |
| Annexures |
TABLE OF CONTENTS
| Sr. No. | Particulars |
|---|---|
| 1 | Preface of this Policy |
| 2 | Objective of this Policy |
| 3 | Internal Responsibilities |
| 4 | Interest Rate Model |
| 5 | Benchmark Establishing the Interest Rate |
| 6 | Principles Behind Charging Different Interest Rates |
| 7 | Additional Charges |
| 8 | Other Procedural Aspects |
| 9 | Review of this Policy |
Preface of this Policy
In accordance with the guidelines issued by the Reserve Bank of India (RBI), the Board of each NBFC is required to approve an interest rate model applicable to the Company, taking into account relevant factors such as cost of funds, margin, and risk premium. The Board determines the rate of interest to be charged for loans and advances. Additionally, the RBI mandates that the approach for risk gradation and the rationale for charging different rates of interest for different categories of borrowers be communicated to borrowers via the sanction letters.
As per the Master Direction on NBFC-Scale Based Regulation, 2023 (DoR.FIN.REC.No. 45/03.10.119/2023-24 dated October 19, 2023, as amended), the RBI advises NBFC Boards to establish internal policies and procedures to define interest rates, processing fees, and other charges. This directive was issued in response to complaints regarding excessive interest rates and charges levied by NBFCs on certain loan products.
The Board of Directors of B P Securities (India) Private Limited (hereinafter referred to as the "Company" or "BPS") has formulated a detailed Interest Rate Policy (“the Policy”) in line with RBI’s master direction (including all subsequent amendments). This Policy outlines the Company’s internal guiding principles, interest rate model, interest rate gradations, and the rationale for charging different interest rates to various borrower categories.
The Company shall adhere to this Policy while making all decisions related to the determination of interest rates and other charges applicable to its loan products and offerings.
2. Objective of this Policy
The primary objective of this Policy is to establish the principles, methodology, and approach for determining spreads and arriving at the final interest rates charged to customers. It also defines the standard interest rates applicable to different customer segments and loan offerings.
This Policy provides the Company with a clear framework for outlining the rationale and principles behind charging different interest rates to various categories of customers.
Through this Policy, B P Securities (India) Private Limited (BPS) ensures that interest rates are determined in a manner that supports the long-term sustainability of the business, considers the interests of all stakeholders, and adopts a suitable model for calculating the reference rate.
3. Internal Responsibilities
Board of Directors: The Board of Directors of the Company shall oversee the implementation of this Interest Rate Policy and ensure its effective execution. The Board may delegate responsibility for the implementation of this Policy and other related operational aspects to any Director and/or the Asset-Liability Committee (ALCO) as it deems appropriate.
4. Interest Rate Model
The Company’s borrowings and all loans to clients shall be offered on Fixed Rates or Floating Rates, depending on the product and customer segment.
As a diversified NBFC, B P Securities (India) Private Limited (BPS) provides a range of lending products to cater to the needs of different customer segments. The primary target audiences include:
- Consumer Retail Loan – Unsecured Loans
- Consumable Durables Loan
- Personal Loan
Currently, BPS uses a single Base Rate applicable to all customer segments. This Base Rate is calculated by considering factors such as:
- Weighted Average Cost of Borrowing
- Cost of Equity
- Fund Raising Cost
- Operational Expenses (Opex)
- Risk Premium
- Base Return on Assets (ROA)
Further, the interest rate applicable to each individual loan account is determined based on factors such as the tenure of the loan, the borrower’s profile, repayment capacity, and the borrower’s past repayment track record.
BENCHMARK ESTABLISHING THE INTEREST RATE
The interest rate applicable to different loan products of the Company shall be determined by taking the following aspects into consideration:
5. Benchmark Factors for Interest Rate Calculation
| Sr. No | Factor | Description |
|---|---|---|
| 1 | Weighted Average Cost of Borrowing | The Company borrows funds through term loans, ICDs, Non-Convertible Debentures, and subordinate debt from investors. The weighted average cost of borrowing of such funds is used for benchmark calculation. |
| 2 | Cost of Equity | BPS allocates an equity portion to run the business, and the cost of such equity is considered in the interest rate calculation. |
| 3 | Fund Raising Cost | Includes processing fees on term loans, brokerage for raising funds through NCDs/ICDs, rating fees, trusteeship fees, and commission. |
| 4 | Opex Cost | Covers employee expenses, office and infrastructure-related fixed and variable costs, operations costs, sales, and marketing expenses. |
| 5 | Risk Premium | Base risk premium to cover business-related risks, varying by business, customer segment, geography, and sourcing channel. |
| 6 | Base ROA | Base Return on Assets is the minimum return expected by the Company on its assets. |
6. Principles Behind Charging Different Interest Rates
The Company considers the following factors when determining different interest rates for various customers:
- Risk associated with credit and probability of default in the applicant’s business segment
- Track record of clients with similar backgrounds
- Historical performance of similar homogeneous clients
- Profile of each loan applicant
- Industry to which the applicant belongs
- Repayment history of the borrower
- Ticket size of the loan
- Credit Bureau score of the borrower
- Duration of the loan
- Collection performance in the geographies of the applicant
- Existing debts of the borrower
The interest rate for the same product and tenure, availed during the same period by different customers, may not necessarily be identical. Rates may vary depending on one or a combination of the factors listed above.
7. Additional Charges
In addition to interest, the Company may levy the following financial charges where applicable:
- Loan Processing Fees
- Cheque Bounce Charges
- Electronic Service Charges (ESC) Failure Charges
- Penal Charges
- Pre-payment / Foreclosure Charges
- Late Payment Fees
Any changes to these charges will be communicated to borrowers in advance and will be applied prospectively.
8. Other Procedural Aspects
The Company shall follow the procedures below regarding the interest rates and charges on its loan offerings:
- In compliance with the Fair Practices Code, the Company will disclose the rate of interest, the approach for risk gradation, and the rationale for charging different rates to various borrower categories explicitly in the Loan Application Form and the Loan Sanction Letter.
- The borrower shall be informed of their loan amount, annualised rate of interest, and other loan details at the time of loan sanction.
- Additional charges such as processing fees, penal interest for delayed payments, and cheque bouncing charges shall also be clearly mentioned in the Loan Sanction Letter and Loan Agreement.
- The annualised rate of interest shall be communicated to the borrower, ensuring transparency about the exact rates applied to the account.
- Any increase in fees or charges will be communicated to customers through various channels, including SMS, email, and website updates.
9. Review of this Policy
This Policy shall be reviewed annually by the Board of Directors or whenever changes are required. The Chief Compliance Officer, Executive Director, or the designated Committee may propose changes or modifications to the Policy and present them to the Board for approval and adoption.