Lending Rate Model & Charges Applicable to Customers

• The model used by Bazaari Finance for determining the Lending Rate for different segment of customers/products/geographies and the approach for gradation of risks is given below.

  1. Lending Rate

  The Lending Rate for each major segment is calculated as an aggregation of the following cost factors:

  • a. Weighted Average Cost of Capital – The Company borrows funds through Bank Term loans, Non-Convertible Debentures and Commercial paper and subordinate debt, etc. from the investors. Additional to the borrowing, the Company also has equity portion and the cost of such equity is considered to arrive at the weighted average cost of capital.
  • b. Fund Raising Cost – It includes processing fees on term loans, brokerage to source funds through NCDs /Deposits, CPs, Rating Fee, trusteeship fee, IPA commission on CPs, exchange listing fee etc.
  • c. Negative Carry on Investment – The Company keeps liquidity buffer in the form of investments into liquid funds in compliance with RBI guidelines and to manage liquidity risk and has to bear negative carry on those investments too.
  • d. ALM Mismatch Cost – The Company borrows funds through short-term and long-term products and to comply with the regulatory guidelines, it needs to manage ALM gaps under certain limits imposed by the regulator, while taking into account the prepayments made by the customers.
  • e. Operating Cost – It includes employee expenses, branch related fixed and variable costs, operations costs, sales and marketing expenses, technology expenses, expenses related to sourcing and recovery, etc.
  • f. Credit Risk Premium – Based on risk gradation of the customer which is detailed in Section 2(a), credit risk premium is computed on a case-to-case basis.
  • g. Expected ROA – Expected Return on Assets is the minimum return expected by the company on its assets.

  2. Approach for Gradations of Risk and Rationale

  The Lending Rate will be different for different categories of borrowers. The lending rate will be arrived at by considering the following:

  • i. Customer Attributes: Profile & segment of the customer, tenure of customer relationship, past repayment track record, financial strength, market reputation, prior vehicles/equipment owned, primary and additional income sources, land/property ownership, geography of the customer.
  • ii. Business Viability of the Customer: Nature of business activity, contracts held, experience in business, profitability of business and certainty of cash flows, inherent credit and default risk in the business.
  • iii. Asset Attributes: Type of asset (e.g., make/model of vehicle or commercial/residential/mixed-use properties), age of the asset, location of asset, usage of asset that is being lent against by the company.
  • iv. Loan Attributes: Loan-to-Value (LTV) ratio, tenure of the loan, type of transaction, ancillary business opportunities, future potential, group strength, and value to lender group.

  b. The Lending Rate is determined on a case-to-case basis and will depend upon considerations of any or a combination of a few or all factors listed out in point 2-a above.

  3. Revision to Lending Rate

  The revision to Lending Rate would be decided periodically, depending upon market volatility and cost to company.

  4. Revisions Shall Be Prospective

  Revision of interest rate and other charges would be prospective in effect, and intimation of change of interest or other charges would be communicated to the customer in a mode and manner deemed fit.

  5. Annualised Rate

  The interest would be charged on monthly/quarterly/half-yearly rests or on maturity, depending on product features and customer preferences. However, the customer would be provided an annualised rate of interest in the sanction letter. Annualised Percentage Rate (APR) will be part of the Key Facts Statement (KFS) shared with the customer.

  6. Fee & Charges

  The charges applicable to the customer will be communicated in the Key Fact Statement (KFS). Any revision in these charges or any other applicable charges would be implemented on a prospective basis with due communication to customers.