Policy for determining Interest Rates and Processing and other charges
As stipulated by the Reserve Bank of India (RBI), the Board of Directors of Edelweiss
Retail Finance Limited (ERFL) in their meeting held on February 25, 2015 laid down
the policy for determining Interest Rates, Processing and other charges for the
Loan against Property (LAP), Small and Medium Enterprise (SME) & Rural Finance products.
The said policy has been framed in the light of RBI circular Ref. No. RBI/2008-09/337/DNBS
(PD)/CC. No. 133/03.10.001/2008-09 dated January 2, 2009 and is as under:
Interest Rate for Loan against Property
The interest rates charged by ERFL shall be linked with the ERFL Mortgage Reference
Rate (ERFLMRR). ERFLMRR shall be determined by the Risk & Asset Liability Management
Committee of the ERFL on the basis of the cost of borrowing of ERFL, operating cost,
liquidity and interest rate trend in the market and return on equity.
The Risk/Asset Liability Management Committee shall review ERFLMRR on such periodicity
as may be deemed and modify the same depending upon the market trends and will adopt
the basic formula as provided below for determining ERFLMRR with such modification
as may be deemed necessary.
The interest rate shall be linked to ERFLMRR and spread (plus or minus) will be
determined by the sanctioning authority based on inherent credit and default risk
in the product and customer per se arising from customer segment, profile of the
customers, professional qualifications, stability in earning and employment and
repayment ability, overall customer yield, risk premium, nature and value of primary
and collateral securities, past repayment track record of customers, external rating
of the customers, industry trends, tenor of customer relationship, offerings by
competition etc. The company may adopt an interest rate model whereby the rate of
interest for the same product and tenor availed during the same period by customers
would be different from customer to customer depending upon consideration of any
or combination of a few or all factors listed above. Hence the rate of interest
applied would be different from customer to customer and his / her loans.
All the LAP loans made by ERFL shall generally provide for reset of interest rate
unless sanctioning authority decides for a fix rate of interest. The sanctioning
authority shall decide the periodicity of interest reset. The reset shall be linked
to the prevailing ERFLMRR.
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Calculation of MRR (For Incremental Loan on a Base Amount of INR 100)
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|
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Fig in INR
|
A
a.1
a.2
|
Fund Requirement for Loan Amount of INR 100
Loan Amount
RBI Capital Adequacy Requirement (CRAR)
Current : 15%
|
|
B
b.1
b.2
|
Funding Composition
Own Capital
Borrowed Funds
|
|
C
c.1
c.2
|
Funding Cost
Cost of Own Capital
(Assumed flat rate of 21%)
Borrowing Cost
(Weighted Rate for last 6 months + 200 Basis point spread)
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|
|
D
|
General Provisioning for Standard Assets
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|
|
E
|
Risk Margin / Credit Cost
|
|
|
F
|
Administrative Cost
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|
|
|
ERFLMRR
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Interest Rate for Small and Medium Enterprise Loan
The interest rates charged by ERFL shall be linked with the ERFL Small and Medium
Enterprise Reference Rate (ERFLSMERR). ERFLSMERR shall be determined by the Risk
& Asset Liability Management Committee of the ERFL on the basis of the cost
of borrowing of ERFL, operating cost, liquidity and interest rate trend in the market
and return on equity.
The Risk/Asset Liability Management Committee shall review ERFLSMERR on such periodicity
as may be deemed and modify the same depending upon the market trends and will adopt
the basic formula as provided below for determining ERFLSMERR with such modification
as may be deemed necessary.
The interest rate shall be linked to ERFLSMERR and spread (plus or minus) will be
determined by the sanctioning authority based on inherent credit and default risk
in the product and customer per se arising from customer segment, profile of the
customers, professional qualifications, stability in earning and employment and
repayment ability, overall customer yield, risk premium, nature and value of primary
and collateral securities, past repayment track record of customers, external rating
of the customers, industry trends, tenor of customer relationship, offerings by
competition etc. The company may adopt an interest rate model whereby the rate of
interest for the same product and tenor availed during the same period by customers
would be different from customer to customer depending upon consideration of any
or combination of a few or all factors listed above. Hence the rate of interest
applied would be different from customer to customer and his / her loans.
All the SME loans made by ERFL shall generally provide for reset of interest rate
unless sanctioning authority decides for a fix rate of interest. The sanctioning
authority shall decide the periodicity of interest reset. The reset shall be linked
to the prevailing ERFLSMERR.
|
Calculation of ERFLSMERR (For Incremental Loan on a Base Amount of INR 100)
|
|
|
|
Fig in INR
|
A
a.1
a.2
|
Fund Requirement for Loan Amount of INR 100
Loan Amount
RBI Capital Adequacy Requirement (CRAR)
Current : 15%
|
|
B
b.1
b.2
|
Funding Composition
Own Capital
Borrowed Funds
|
|
C
c.1
c.2
|
Funding Cost
Cost of Own Capital
(Assumed flat rate of 21%)
Borrowing Cost
(Weighted Rate for last 6 months + 200 Basis point spread)
|
|
|
D
|
General Provisioning for Standard Assets
|
|
|
E
|
Risk Margin / Credit Cost
|
|
|
F
|
Administrative Cost
|
|
|
|
ERFLSMERR
|
|
Interest Rate for Rural Finance
The interest rates charged by ERFL shall be linked with the ERFL Micro Finance Reference
Rate (ERFLMFRR). ERFLMFRR shall be determined by the Risk & Asset Liability
Management Committee of the ERFL on the basis of the cost of borrowing of ERFL,
operating cost, liquidity and interest rate trend in the market and return on equity.
The Risk/Asset Liability Management Committee shall review ERFLMFRR on such periodicity
as may be deemed and modify the same depending upon the market trends and will adopt
the basic formula as provided below for determining ERFLMFRR with such modification
as may be deemed necessary.
The interest rate shall be linked to ERFLMFRR and spread (plus or minus) will be
determined by the sanctioning authority based on inherent credit and default risk
in the product and customer per se arising from customer segment, profile of the
customers, professional qualifications, stability in earning and employment and
repayment ability, overall customer yield, risk premium, nature and value of primary
and collateral securities, past repayment track record of customers, external rating
of the customers, industry trends, tenor of customer relationship, offerings by
competition etc. The company may adopt an interest rate model whereby the rate of
interest for the same product and tenor availed during the same period by customers
would be different from customer to customer depending upon consideration of any
or combination of a few or all factors listed above. Hence the rate of interest
applied would be different from customer to customer and his / her loans.
All the Rural Finance loans made by ERFL shall generally provide for reset of interest
rate unless sanctioning authority decides for a fix rate of interest. The sanctioning
authority shall decide the periodicity of interest reset. The reset shall be linked
to the prevailing ERFLMFRR.
|
Calculation of ERFLMFRR (For Incremental Loan on a Base Amount of INR 100)
|
|
|
|
Fig in INR
|
A
a.1
a.2
|
Fund Requirement for Loan Amount of INR 100
Loan Amount
RBI Capital Adequacy Requirement (CRAR)
Current : 15%
|
|
B
b.1
b.2
|
Funding Composition
Own Capital
Borrowed Funds
|
|
C
c.1
c.2
|
Funding Cost
Cost of Own Capital
(Assumed flat rate of 21%)
Borrowing Cost
(Weighted Rate for last 6 months + 200 Basis point spread)
|
|
|
D
|
General Provisioning for Standard Assets
|
|
|
E
|
Risk Margin / Credit Cost
|
|
|
F
|
Administrative Cost
|
|
|
|
ERFLMFRR
|
|
Processing Fee/Upfront Fee
Processing fee shall be determined by the sanctioning authority on the basis of
the quantum of work involved in credit appraisal, volume of documentation involved,
other expenses involved in the transaction and negotiation with client. The Risk/Asset
Liability Management Committee of the Board of Directors of ERFL may from time to
time review the guidelines for charging processing fee or prescribe fixed processing
for a particular product. The sanctioning authority shall have power to reduce /
waive the processing fee on case to case basis.