Basant India Limited An NBFC

Interest Rate Policy

The Reserve Bank of India (RBI) had vide its Circular DNBS / PD / CC No. 95/ 03.05.002/ 2006-07dated May 24, 2007 advised that Boards of Non-Banking Finance Companies (NBFC's) lay out appropriate internal principles and procedures in determining interest rates, processing and other charges.

This was reiterated vide RBI's circular DNBS (PD) C.C. No. 133 / 03.10.001/ 2008-09 January 2, 2009, whereby which RBI advised the NBFCs to adopt appropriate interest rate model taking into account relevant factors and to disclose the rate of interest, gradations of risk and rationale for charging different rates of interest to different category of borrowers.

M/S Basant India Limited, hereinafter termed as “non-banking financial company”in this document adopts following policy on Interest Rate to be applied on the loans granted /to be granted during its course of business;

The policies and codes of M/S Basant India Limited should always be read in conjunction with RBI guidelines, directives, circulars and instructions. The company shall apply best industry practices so long as such practice does not conflict with or violate RBI guidelines.

The Company’s board shall fix the interest rates on gold loans based on various factors which are intrinsic and extrinsic to the company. The rates shall be decided and reviewed by the board regularly not later than a month by the board. However, in case of urgency review and changes can be done earlier also.

As per this policy, rate of interest on gold loan schemes shall be fixed taking into account various factors such as cost of funds, overhead costs, matching tenor cost, fair return on capital employed, market liquidity, offerings by competitor, cost of disbursements, market conditions and guidelines of Reserve Bank of India regarding Fair Practices Code. Guidelines of Reserve Bank of India from time to time also shall be strictly followed.

The Board of Directors of the Company or a Committee drawing powers from the Board, while fixing interest rates on Gold Loan Schemes shall be guided by this policy document on Interest Rate Fixation.

In addition to cost factors set out hereunder, the Board or the Committee shall be guided by the market conditions and various 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 Gold Loan Schemes shall have the following components:

  • Basic Interest Rate
  • Cost of working capital
  • Fair return expected on capital
  • Risk Interest Rate
  • Panel Interest

The rate of interest of each scheme for each slab period (3 months, 6 months, 12 months) etc. shall be clearly mentioned in the pledge form and shall also be mentioned in the sanction letter issued to the borrower, which will be acknowledged by customer under his/her signatures.

Basic Interest Rate

Basic Interest Rate represents the rate chargeable under every Gold Loan Scheme irrespective of the risk weight attached to the schemes or the type of scheme. Basic Interest shall be arrived at after considering the following aspects
Cost of Working Capital Funds

This component represents the interest and other incidental charges payable by the Company for servicing the borrowed funds.
Overhead Cost

Overhead costs comprises of employee cost, other operational 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 and cash held in the custody of the Company and marketing expenses etc.
Return on Capital Employed

Fair return on capital is arrived as per industry standards and taking into account the interest of stake holders of the Company. 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.
Risk Interest Employed

Risk Interest shall be determined by taking into account the degree of risk involved in loans under each loan scheme. While the rate shall be the low for the schemes where advance amount vis-à-vis the weight of gold is the lowest, it shall be increased for schemes offering higher advance amount for the same weight. Further, irrespective of the scheme, the risk interest shall also be determined after taking into account the period of the loan as the incidence of risk goes up with the passage of time. Risks in respect of gold loans includes the fall in price of gold, possibility of the gold pledged turning out to be spurious or of low purity, stolen gold being pledged, delays in settling loans of deceased due to legal issues etc.

The interest rate goes up depending upon the periodicity of servicing the interest. Interest servicing within 30 days of disbursal is priced lowest compared to 90 days and so on.
Penal Interest Rate

Penal interest will be charged as penalty for non-servicing of interest & non-repayment of the loan dues as stipulated in sanction letter.

The full details of method of calculation of penal interest has been mentioned in the Fair Practices Code approved by the Board of Directors.

Market Conditions: Market conditions include the rate of interest charged for similar loans by other NBFCs, which will also be factored.

Thus the interest rate for the gold loan schemes shall be determined by considering the cost of working capital, overhead cost and fair return on capital employed and all factors enlisted here above.