INTEREST RATE POLICY
(Last modified on 14
th
February 2022)
1. INTRODUCTION
The Company has been following certain procedures and practices in the matter of fixing
interest rates on gold loans and other loans (assets) and NCDs/Subordinated Bonds
(liabilities). Interest rates are not controlled by the Reserve Bank of India. However, RBI has
vide circular DNBS. CC.PD. No.266/03.10.01/2011-12 dated 26 March 2012 (Guidelines on
Fair Practices Code for NBFCs) directed NBFCs to have a documented Interest Rate Policy
/ Model approved by the Board of Directors which would lay down internal principles and
procedures in determining interest rates and other charges on the loan products offered by
NBFCs. The specific points referred to in the above referred RBI circular are:-
• Charging of excessive interest rates by NBFCs.
• The need for adoption of an interest rate model along with approach for gradations of risk
& rationale for charging differential rates.
• Disclosure of rates of interest rates, changes thereof and publicity thereto.
• Adoption of annualized rates of interest while dealing with customers.
2. OBJECTIVES
The main objectives of the interest rate policy are to:-
• Ensure that interest rates are determined in a manner to ensure long term
sustainability of business by taking into account the interests of all stakeholders.
• Develop and adopt a suitable model for calculation of a reference rate.
• Enable fixation of interest rates which are reasonable: both actual and perceived.
• Ensure that computation of interest is accurate, fair and transparent in line with
regulatory expectations and market practices.
• Charge differential rates of interest linked to the risk factors as applicable.
• Facilitate transition to income recognition norms that may be stipulated by RBI in future
and adoption of best practices.
3. Methodology for calculation of interest on loan accounts
The main spirit underlying the methodology is to project a transparent and fair approach to
the customers and also be in readiness to adopt the practices now in vogue amongst commercial
banks keeping in view the peculiarities of the gold loan business.
3.1 On the daily balances
Interest amount shall be calculated on the daily outstanding balance in the loan account at
the applicable rate. Thus if the annualized rate of interest applicable is R%, the interest
amount for each day would be:-
R X Amount outstanding
36500
3.2 Minimum period for which interest chargeable
The minimum period for which interest is payable by the borrower shall not exceed 1 day.
Interest payable / receivable shall be calculated on the actual daily outstanding balance.
3.3 Basis - number of days per year
Interest shall be calculated based on 365 days a year. Dates of disbursement and closure of
account shall both be included for computation of interest. However, MD&CEO may approve
any exclusion of date of Disbursement or date of Closure of Account for a particular scheme
or loan account as rebate.
3.4 Compounding
Compounding of interest where applicable, as provided in the loan scheme, shall not be at a
frequency more than 1 month / 30 days in a year.
3.5 Annualised rate of interest
Interest rate quoted shall be on annualized basis only in all documents, internal instructions
/ communications and publicity materials (pamphlets, brochures, hoardings, etc)
Where the rates are mentioned in non-annualized form (e.g. in product promotion) the
annualized rate shall also be mentioned along with so as to comply with regulatory
requirements and Fair Practices Code.
3.6 Fixed rate / Floating rate
All the loans shall be granted at fixed rate only.
3.7 Maximum/ Ceiling Interest Rate on Loans
Keeping in view the regulatory (RBI) expectations from NBFCs and also the Fair Practices
Code the maximum interest rate chargeable shall be fixed at 36% p.a during the normal
loan tenure across all states / regions excluding compounding effect where applicable
under any schemes.
Penal interest and other out of pocket expenses charged from the borrowers will be
exclusive of the ceilings mentioned above.
The above mentioned ceilings shall be reviewed periodically at quarterly (calendar) intervals
or more frequently, as and when required, by the Board of Directors keeping in view
regulatory guidelines / directives, intensity of competition in the market, net interest
margin target, market rates etc.
3.8 Notice to borrowers for changes in interest rates, charges etc.
Notice shall be sent to the borrowers in the vernacular language or a language as
understood by the borrower of any changes in the terms and conditions including
disbursement schedule, interest rates, service charges, prepayment charges etc. It shall
be ensured that changes in interest rates and charges are effected only prospectively.
4. MAFIL Benchmark Lending Rate (MBLR)
All banks in India, following RBI directions of March 2016, fix MCLR for different maturities as
an internal benchmark for setting floating rate of interest. Banks are also allowed to offer
loans linked to external benchmarks. MCLR comprises marginal cost of funds, operating costs
and tenor premium.
MBLR, which is benchmark for our interest rates consists of marginal cost of funds, operating
costs and tenor premium. Current MBLR for benchmarking interest rates of our products is
17%. ALCO shall review MBLR on a quarterly basis.
5. Risk Based Gradation of Interest Rates.
The Lending Rate will be different for different categories of borrowers, considering profile of
the customer, tenure of customer relationship, past repayment track record, customer
segment, market reputation, inherent credit and default risk in the products, subventions and
subsidies available, ancillary business opportunities, future potential, group strength and
value to lender group, overall customer yield, Loan‐to Value (LTV) ratio, nature and value of
primary and collateral security etc. The Lending Rate is determined on a case to case basis.
Pricing of each loan product will be derived from MBLR after considering the following risks.
5.1 Liquidity risk premium
While MAFIL lends on fixed rate of interest, majority of its borrowings are on floating rate
basis. This leads to interest risks. To mitigate this, liquidity risk premium based on the
movement of G Sec yield, spread of AA rated NBFC corporate bonds over G Sec yield, forward
exchange premium, volatility of SOFR etc. need be provided for fixing rate of interest for the
products.
5.2 Credit risk premium
Credit risk premium shall be computed based on the portfolio behavior, Probability of Default
(PD) and Loss Given Default (LGD), Credit Score of the borrowers etc.
6. Pricing of gold loans
6.1 Rate of interest, benchmarking to MBLR.
• Considering the nature of the Gold loans (collateral valuation being vital) the major
inherent risk is the Loan to Value (LTV) or Loan per Gram. Since a higher LTV translates
to a higher risk it stands to reason that LTV and Interest rate should be correlated.
Accordingly, assuming all other factors to be the same a higher LTV loan should
attract a correspondingly higher interest rate as compared with a lower LTV loan.
• The LTV linkage with interest rate shall be at the time of sanction of loan and cannot
be changed subsequently due to movements in the overall collateral coverage arising
from market movements in gold prices.
• Where substantially low rates of interest are charged on certain / special schemes or
in specified regions / areas / branches the maximum amount per borrower shall
be appropriately restricted and checks put in place to prevent misuse of the facility.
Such schemes shall be periodically reviewed and appropriately modified to meet with
the overall objectives of floating such schemes.
6.2 Rebate on Gold Loan interest
Considering the competition in the market, MAFIL introduced new gold loan schemes
with rebates. Schemes offering rebate on the interest rate may be considered on the
ground that customers who regularly service interest payable on loans. The extent of
rebate may vary from scheme to scheme. Rebate considered in cases where interest
payable has been serviced by the due dates without any default.
6.3 Due date for servicing interest
Interest will be calculated from the date of disbursement and shall be charged for the
day of closure of the account. The due date for payment of interest shall run from the
date of disbursement.
6.4 Penal Interest on overdue loans
When the loan remains outstanding beyond the 'normal' tenure (Between 3 Months and
1 year) without FULL servicing of interest due penal interest may be charged at a rate
not exceeding 3% pa (i.e. at the contracted rate plus 300 basis points) on the amount
due and payable. Penal interest provisions shall be calculated and will apply only after the
expiry of the 'normal' tenure.
Penal interest may be waived, in full or in part, in deserving cases with the reason being
recorded by Managing Director & CEO.
7. Pricing of products of other verticals, benchmarking to MBLR.
Rate of interest for products of each vertical shall be benchmarked to MBLR. While pricing
each product underlying credit risk premium and liquidity risk premium shall be factored
in.
Products offered and features thereof shall be straight forward, transparent and simple
to understand so as to comply with the letter and spirit of RBI guidelines. Features of
each product, especially the differential features, should be clearly explained to and
understood by the prospective borrower before sanction. Operational personnel should
be well equipped in this regard.
8. Indicative range of interest linked to MBLR
Indicative range of interest for various verticals / products of MAFIL based on the current
MBLR is given below.
Verticals / segments / product
Range
(Annualised Rate)
Gold loans
6.9 – 29%
Commercial vehicles
14 - 36%
Two wheelers
14 – 36%
Digital Personal Loan
16 - 25%
Secured Personal Loan
10.5 – 20%
MSME
16 – 26%
Micro Home Finance
14 – 26%
Gold Backed Two-Wheeler Loan
14 - 21 %
Corporate Loans
12 - 18%
Project and industrial finance
14 - 22%
These rates are subject to revision by ALCO.
9. Lending below MBLR
As a business organization to meet competition and promotion of products, MAFIL will
have to offer interest rates below MBLR. MD&CEO is empowered to approve interest rate
below the MBLR bearing in mind the overall profitability of the company, competitive
scenario, business focus and the underlying risk exposure.
10. Other Charges and recovery of Out-of-Pocket Expenses
10.1 Gold loans
The Company may also levy other charges such as loan processing fees, insurance (of
gold ornaments), processing charges for delivery of gold against lost pawn ticket, safe
custody charges (due to failure to take delivery of gold ornaments immediately after closure
of account), statement of account etc. In addition, the Company shall be entitled to recover
costs incurred in connection with postage, legal costs etc. The above charges shall be pegged
at reasonable levels and in the spirit of Fair Practice.
• Guidance rates are as under:
Description
Range of charges
Loan processing , Appraisal
charges, Insurance etc.
Will be capped at 1% of the loan
amount. A reasonable minimum and
maximum in absolute terms may be
prescribed.
Delivery against lost Pawn
Ticket - processing charges
Between a minimum of Rs 50 and
maximum of Rs 250 per pledge
Safe custody charges –
when borrower does not
immediately take delivery of
the pledged gold ornaments
Between 0.10% to
0.25% per month subject a reasonable
minimum and maximum in absolute
terms
Statement of account
Free of cost, if demanded within 30
days of closure of account. In other
cases, a minimum of Rs. 25 and
maximum of Rs.100 per statement
Postage, Courier charges
As per Existing circular
10.2 Other charges (Non-Gold Loans)
Verticals
Processing fee (%)
Overdue
interest (%)
Bounce
charges (Rs)
Prepayment
charges (%)
Commercial Vehicles
2
3%
per month
Rs. 500/-
(1
st
instance)
Rs. 750/-
(2
nd
instance)
Rs. 1000/-
(3
rd
instance
onwards)
4
Two Wheelers
2
4
Digital Personal Loan
3
4
Secured Personal
Loan
2
3
Gold Backed Two
Wheeler Loan
2% or Rs 2500
whichever is higher
4
SME
3
3
MSME
1.5
3
Micro Home Finance
LAR -2%
Loans upto 5 lakh - 2.5
Loans above 5 lakh - 2
2
Corporate Loan
2
3
Project and Industrial
Finance
4
4
10.3 Variations / taxation
• The actual rates from time to time shall be fixed by the ALCO within the band / limits
mentioned under each head and reviewed at at-least half yearly intervals.
• ALCO shall have the authority to implement any other reasonable / justifiable charge
from time to time.
• Taxation regulations as applicable shall be complied with. The rates may be
inclusive of taxes or exclusive of taxes as per the decision of ALCO based on the
recommendations of the Business Heads.
• Discretion to waive / reduce the charges shall be vested with the Business Head
on a case to case basis based on the approved delegated powers.
11. Asset Liability Management Committee (ALCO)
The ALCO shall hold meetings at calendar quarterly intervals or more frequently when
required. Review of interest rates shall be periodically taken up by the ALCO within the
overall stipulations of the Interest Rate Policy approved by the Board of Directors.
The ALCO shall consist of the under mentioned functionaries
• Managing Director & CEO Chairman
• Chief Financial Officer Member
• Chief Risk Officer Member
• SVP A&BR Invitee
• Chief Technical Officer Invitee
11.1 Powers of ALCO to vary interest rate
There may be exceptional economic situations that may result in a change in the liquidity
environment and the availability of funds to the Company. The ALCO under the
Chairmanship of MD&CEO will have the authority to amend the rates and the indicative
table above with appropriate disclosure and these shall be presented to the next Risk
Committee meeting for ratification.
12. General
Interest rate re-setting - loans other than Gold loan: To mitigate interest rate risks in the
longer tenor loans in the verticals like commercial vehicles, MSME, personal loans, Micro
Home Finance, Corporate etc. Sanctioning Authorities shall have the powers to prescribe
rate of interest reset on quarterly / half yearly / annual / 2 or 3 year basis. Interest reset
clause shall be incorporated in the sanction letters, wherever applicable. Loan agreements
with the borrowers shall also be modified to include interest reset clause.
Appropriation of charges and interest: Remittances to the borrowers’ account shall at first
be appropriated towards charges levied and surplus, if any shall be adjusted towards EMIs.
Advance payments made by the borrowers shall not be reduced from the principal for
computation of interest, unless MAFIL approves modifications in the repayment schedule.
The rates of interest for the same product and tenor availed during same period by
different customers need not be standardized but could be different for different customers
depending upon consideration of factors like credit risk, liquidity risk and tenor risks.
MAFIL shall intimate the borrower loan amount, annualized rate of interest, periodicity of
interest application, tenure and amount of monthly installment application at the time of
sanction of the loan.
MAFIL also offers variable and equated monthly installments schemes.