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Interest Rate Policy

This document prescribes the guiding principles of fixing interest rate on all loans including Grameen Gold Loan, Grameen Flexi Gold Loan, Gram Business Growth Loan, Grameen Personal Loans, Oleevia Professional Practice Loan, Oleevia Equipment Loan, Grameen Group Loans and other loan schemes of Oleevia Gramin Credits Private Limited (‘the Company’) as may be introduced from time to time.

The rate of interest on all loans of the Company including gold loan schemes are fixed taking into account various factors which shall include but not limited to matters such as:

  • Cost of funds and overhead costs
  • Fair return on capital employed
  • Market conditions and industry practices
  • Fair Practice Code of the Company
  • Guidelines of the Reserve Bank of India including guidelines stated in directions for Fair Practices Code.

The Board of Directors of the Company or a Committee drawing authority from the Board referred to as the ‘Credit and Finance Committee’ (CFC), while fixing interest rates on Gold Loan Schemes shall be guided by this policy document for Interest Rate Fixation.

In addition to cost factors set out hereunder, the Board or the CFC shall be guided by the market conditions and relevant rules and regulations, if any, prescribed by the Reserve Bank of India or such other competent authority from time to time.

Interest charged under various loans and credit facilities including Gold Loan Schemes shall have the following components:

  • Basic Interest Rate
  • Risk Interest Rate including Additional Interest Rate
  • Penal Interest Rate
4.1. Basic Interest Rate

Basic Interest Rate represents the rate chargeable under every Gold Loan Scheme irrespective of the risk weight attached to the nature of the scheme. Basic Interest shall be arrived at after considering the following aspects:v

4.1.1 Cost of Working Capital Funds

This component represents the interest and other incidental charges payable by the Company for servicing the borrowed funds which are mobilised through loans from banks and financial institutions,  Secured Non-Convertible Debentures (NCDs), Subordinated Liabilities, Commercial Papers and other market instruments. Major components include interest on the said borrowings, interest on the NCDs, processing or commitment charges on the borrowings and other incidental charges thereto, for e.g., .arrangers’ fee, syndication fee.

Cost of working capital shall include cost of co-lending and back-to-back lending based working capital funds cost incurred by the Company.

4.1.2 Overhead Cost

Overhead costs 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, statutory expenses, marketing expenses etc.

Overhead costs shall include technology costs including third party costs like Software or app charges, card issuance and usage charges and charges on providing co-lending, wallet based, UPI based or card-based charges and other integration charges.

4.1.3 Fair Return on Capital Employed

Fair return on capital is calculated as per industry standards and taking into account the interests of investors of the Company.

4.1.4  Market conditions and industry Practices

Market conditions include the rate of interest charged for similar loans by Banks and NBFCs. Guidelines of the Reserve Bank of India from time to time shall also be strictly followed. The Board shall take into consideration a fair return on capital employed which is to be generated by the management for servicing the owners’ capital employed in the business.

Thus the basic interest rate for the loan and all credit facilities extended by the Company shall be determined by considering the cost of working capital, overhead cost, fair return on capital employed and the market conditions.

4.2. Risk Interest Rate

Risk Interest shall be determined by taking into account the degree of credit risk involved in loans under each loan scheme. Some of the credit schemes extended by the Company have a tenure of 1 year (or in certain cases lower) with a bullet repayment option where the customer has the flexibility to service interest and repay the principal. Certain schemes are secured against pledge of gold ornaments or hypothecation of equipment and certain others are unsecured or under the joint lending group model.

The primary risk faced by the Company is Credit risk whereby the borrower defaults on the settlement of the loan (a loan for the purposes of this loan includes a loan, a pledge, hypothecation or other form of lending). This manifests into quantitative terms as illustrated below:

  • Default where the loan is unsecured;
  • In the case of secured loans, the collateral (pledge or hypothecation) value is not sufficient to cover the outstanding interest and/or principal due to a reduction in value of the collateral due to market conditions or where the collateral value is lower than initially estimated (for e.g., purity of gold is lower than initially appraised);
  • The title of the security is faulty (for e.g., the gold pledged is stolen property and is seized by the relevant law enforcement authority);
  • Due to the tenure of the loan which is normally 1 year (certain schemes have a slightly lower tenure) coupled with the bullet repayment / interest servicing option on maturity, the probability of default may be higher.

In view of the risk factors as outlined above, the Company’s basic interest rate will be fixed at 24% or at such rate that may be defined by the Company from time to time and falls within the relevant regulations in force for the time being. However, regard will be given to the following parameters whilst charging the basic interest rate or allowing rebates:

  • Nature and characteristics of the relevant loan scheme;
  • Security offered and the collateral coverage estimated on initial assessment;
  • Frequency and the time bucket in which interest is serviced during the tenure of the loan;

Accordingly, effective yield to the Company on loans provided by the Company vary depending upon a factor or combination of the following which is specified in the loan agreement between the Company and the borrower:

  • The basic interest rate specified in the relevant scheme;
  • The rebate on the basic interest rate availed by the borrower by ensuring that interest is serviced frequently (as opposed to a bullet repayment) in the specified time buckets;
  • The additional interest charged to a borrower for not servicing interest within the specified time buckets.

The overarching principle of the interest rate policy is that borrowers who service interest on their loans more frequently are rewarded through a rebate whereas the borrowers who are less frequent in servicing interest are charged the basic rate or at a higher rate (additional rate) in line with the credit risk faced by the Company.

For e.g., higher rebate is offered to those servicing interest within 30 days of disbursal as compared to 60 days, 90 days, 180 and so on. The rebate offered decreases as the periodicity of servicing interest increases and correspondingly, the interest rate goes up. The rebate is offered to encourage borrowers to service interest regularly to avail the benefit of higher rebate and lower interest rates thus reducing the Company’s credit risk.

The rebate is only an offer and it is left to the choice of the borrower whether to avail the benefit or not. 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 / loan agreement and accepted the other terms and conditions of the loan. For example, if a scheme is offering a rebate of 10% on the interest rate of 20.5%. p.a., at which the loan is sanctioned, for servicing interest within 30 days, interest will be charged on the outstanding principal only @ 14% p.a. if interest is paid within 30 days from the date of sanction of the loan and then again during each of the subsequent 30-day periods. However, if the customer does not service interest within 30 days after availing the loan, he will lose the advantage of a rebate resulting in a corresponding higher interest rate being charged from the loan origination date or the date of last full service of interest whichever is later.

Similarly, by way of illustration, additional interest (in slabs or otherwise according to the relevant scheme) will be charged if interest is not serviced once in 180 days or 270 days and so on.

Credit scoring

For credit schemes or products that are unsecured in nature which are above a financial limit which may be specified by the CFC from time to time, the Company will implement a credit scoring model for each such product. Such model will amongst other product/scheme specific characteristics take into consideration additional factors such as but not limited to the following:

  • Borrower repayment track record on previous or existing loans with the Company;
  • Income assessment parameters (whether through formal means or informal assessment methods);
  • For business loans, the length of time for which the applicant has been engaged in business;
  • Reports or scores of the borrower that are obtained from credit information companies (for e.g. CIBIL, Equifax).

The risk interest rate on such unsecured loans may be fixed depending on the credit score (which is indicative of the credit risk associated with the relevant applicant) arrived at through the internal credit scoring model of the Company.

The details of basic interest rate, rebate and additional interest as applicable will be available in the relevant product note and in the relevant loan agreement.

It is the prerogative of the Company to allow any concession or waivers, when the interest rate changes as above, based on merits of each case as appropriate.

4.3. Penal Interest Rate

The Company reserves the right to charge Penal interest non-repayment of the loan and interest dues within the contracted period to cover the additional costs associated with the recovery of the outstanding amounts such as but not limited to auction costs, legal costs and other administrative costs. Penal interest may be charged on the outstanding principal amount or the aggregate of principal and interest outstanding and at such rates (slabs based on defined parameters or at a flat rate or a combination thereof) as may be decided upon by the Company and disclosed in the relevant loan agreement when the loan is sanctioned.

Penal interest, if applicable, will be calculated from the date of maturity of the loan until the said loan is settled or foreclosed as appropriate.

Interest is calculated at simple interest based on the product method, i.e. the product of the principal outstanding and the time or number of days for which the principal was outstanding.

However, where a minimum number of days is specified for the loan in the loan agreement, if the borrower closes the loan within such minimum days from the date of disbursement, then a minimum interest for such specified number of days shall be payable for all loans or an amount of Rs 100 whichever is higher. In such cases, the borrower will be charged the basic interest rate specified for the loan less any applicable rebates in accordance with the loan agreement subject to a minimum amount of Rs 100 as specified above.

For loans not settled on the maturity, the Company may charge penal interest on simple or compounding basis as has been outlined in point 5.3 above.

The Company may, at its discretion allow grace period from the due dates as decided from time to time if the date for payment of interest falls due on a Holiday/Sunday.

For the purpose of calculation of interest, a year will be reckoned as 365 days. Leap years shall be also calculated as 365 days basis.

The full details of method of calculation of risk interest and penal interest shall be mentioned in the Fair Practices Code approved by the Board of Directors and be published in Company’s web site.

The rate of interest of applicable for each scheme and the rebate allowed on timely payment of interest under different slab periods (1 month, 2 months, 3 months, 6 months, 12 months) etc. are clearly mentioned in the pledge form or the sanction letter or the loan agreement entered into between the Company and the borrower.

The Company may introduce schemes where the interest and principal on these schemes are collected either on Equated Monthly Instalments (EMI) basis or on other instalments of specified periodicity (for the limited purpose of this policy all loans where principal and interest is collected through equated installments, such installments will be referred to as EMI).

EMI consists of principal and interest portion and these are apportioned as appropriate and accounted when an EMI is due. As the principal loan outstanding will be higher in the initial period of a loan, interest portion in EMI will be higher in the initial period and later, the interest portion will be lower and principal portion will become higher. The schedule of repayment and the equated instalment will be specified in the loan agreement/sanction letter..

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