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Interest rate being charged is based on various factors like cost of funds, margin, risk premium, un-allocable expenses among other things. As far as risk premium is concerned, it will be based on variables like Profile, underlying security, tenure, other terms and conditions etc.

Asset Liability Committee (ALCO) has been authorised by Board for the purpose of laying out appropriate internal principles and procedures in determining interest rates and other charges. ALCO comprises of Head of the organization along with relevant head of the departments. ALCO has product pricing as one of the responsibilities among other things authorised by Board.

The Board of Directors of the Company or a Committee drawing power from the Board, while fixing interest rates shall be guided by this document on Interest Rate Determination. In addition to basic cost elements, 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 for various products / Schemes shall have the following components:

  1. Base Rate
  2. Approach for Gradation of Risk/Risk Premium
  3. Penalty Charges

1 Base Rate

3. Penalty Charges

  • Base Rate represents the rate chargeable under every product / Scheme irrespective of the risk weight attached to the product / schemes or the type of scheme. Basic Interest shall be arrived at after considering the following aspects:

    1 Cost of Funds

    2 Overhead Cost

    3 Return on Capital Employed

    • This component represents the interest and other incidental charges payable by the Company for servicing the borrowed funds deployed by the Company. Major contributing factor to this component includes Interest on Bank Borrowings, interest on other financial instruments and other incidental charges thereto.
    • This represents the Employee cost to the Company and other operating & miscellaneous overheads.
    • After considering the above cost factors, the Board / committee 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 gold loan schemes shall be determined by considering the cost of funds, overhead cost and fair return on capital employed.
  • 2. Approach for Gradation of Risk/Risk Premium
  • Risk Premium shall be determined by taking into account the degree of risk involved in loans under each product / scheme. While the rate shall be lower for the schemes where advance amount vis-Ã -vis security available is the lowest, it shall be increased for schemes offering higher advance amount for the same security. Further, irrespective of the product /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. Profile of the borrower will also affect premium being charged based on either his repayment capacity or his track record on previous loans with the company, other financial commitments, geography (location) of the borrower, end use of the loan as represented by the underlying asset etc. Such information is collated based on discussions with the borrower, reports from credit bureau wherever necessary etc. and field inspection by the Company officials.
  • Loans outstanding for more than due date shall be charged penal interest in order to compensate for the opportunity cost of cash flows and also to discourage liability getting exceeded the realizable value of security.

Interest Rate Policy

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