Interest Rates & Gradation Of Risk
Preamble: Reserve Bank of India vide its notification No. DNBS. 204 / CGM (ASR)-2009 dated 2nd January 2009 and vide its Guidelines on FPC for NBFCs Master Circular No. DNBR (PD) CC.No.054/03.10.119/2015-16 dated 1st July 2015, has directed the following to all NBFCs:
a) The Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as, cost of funds, margin and risk premium, etc and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.
b) The rates of interest and the approach for gradation of risks shall also be made available on the web-site of the companies or published in the relevant newspapers. The information published in the website or otherwise published should be updated whenever there is a change in the rates of interest.
c) The rate of interest should be annualised rates so that the borrower is aware of the exact rates that would be charged to the account.
Rate of interest: The Company communicates to the borrower, the loan amount and rate of interest at the time of sanction of the loan along with the other terms and conditions.
a) Direct Lending:The rate of interest charged by IIFCL shall be mapped to the effective rate charged by the Lead Lender in the consortium, subject to not being lower than the Base rate of IIFCL
.b) Takeout FinancingThe rate of interest for the loan taken-out by IIFCL on the Scheduled Date of Occurrence of Takeout would be on the basis of credit risk rating of two reputed domestic rating agencies post CoD. The interest rate is reflected through the Base Rate plus the credit risk premium. Detailed guidelines for the rate of interest are as given in the Modified Take-out Scheme on IIFCL’s website.
Approach for gradation of risk:The rate of interest charged by IIFCL is linked to its Base Rate which is determined on the basis of average all-in cost of funds.
The Board of Directors is the competent authority to approve the sanction of a loan. The loan is sanctioned based on the credit appraisal and due diligence done in line with the Credit Policy on broad parameters such as the nature of sector category, borrower profile and creditworthiness, risk rating of the project and security for the loan. Based on the above project appraisal, the competent authority approves the rates of interest based on prevailing market conditions, risk rating and consortium terms.