The Reserve Bank of India (“RBI”), through its applicable directions, Master Directions, circulars and notifications issued from time to time, requires Non-Banking Financial Companies (NBFCs) and their Boards of Directors to undertake a comprehensive review of their internal principles and procedures and to implement an interest rate model that factors in critical elements such as cost of funds, operating expenses, margin, and risk premium for determining the rate of interest on loans and advances.
Karn Securities Private Limited (hereinafter referred to as “the Company”) shall adopt all such guidelines as prescribed from time to time and make necessary modifications to this Policy to ensure compliance with regulatory requirements.
The Company shall comply with all applicable regulatory requirements governing interest rates, pricing of loans, charges, penal charges, Key Fact Statement (KFS), disclosure and fair lending practices, including the RBI (NBFCs – Miscellaneous) Supervisory Directions, 2026, and any subsequent amendments, directions or instructions issued by RBI from time to time.
The Company shall periodically review this Policy and make such modifications as may be necessary to ensure continued compliance with applicable regulatory requirements.
In compliance with the above and the Fair Practices Code adopted by the Company, this Interest Rate Policy outlines the Company’s interest rate model and its approach towards risk-based pricing for its lending business.
Determine internal benchmark rates for borrowers to finalise the applicable rate of interest. The Company shall adopt an internal benchmark rate based on a combination of cost of funds (both internal and external), operating expenses, and a reasonable margin. The internal benchmark shall be reviewed periodically, at least on a quarterly basis, or more frequently if required.
The Company shall maintain a documented methodology for determining the applicable rate of interest for different categories of borrowers and loan products. The methodology shall take into account, as appropriate, cost of funds, operating and administrative costs, credit and default risk, tenor, product characteristics, borrower risk profile, margin and other relevant factors.
The Company shall maintain appropriate parameters for gradation of risk and the rationale for charging different rates of interest to different categories of borrowers. The methodology and its material changes shall be approved by the Board of Directors or an authority duly authorised by the Board.
Publish the interest rates on the company's website to ensure accessibility and transparency. The Company shall disclose on its website the range of interest rates applicable to various loan products, indicating the minimum and maximum rates charged to borrowers. The interest rate applicable to each borrower shall be determined based on the internal benchmark and risk premium, in accordance with the borrower’s risk profile. The Company shall disclose on its website Annual Percentage Rate (APR), wherever applicable, in accordance with RBI guidelines. Such disclosures shall be updated periodically and whenever there is a material change in the Company's interest rate framework to ensure transparency and compliance with regulatory requirements.
Board of Directors: The Board of Directors of the Company shall oversee this Interest Rate Policy and ensure its effective implementation. Further, the Board may delegate the responsibility of implementation of this Policy and other functioning aspects to the Chief Compliance Officer, Executive Director or any Committee authorised by the Board. The Board of Directors shall approve the interest rate model, risk premium framework, penal charges framework and any subsequent modifications thereto.
The Company applies a per-day interest rate on its loan products. The applicable interest rate is determined after considering the following factors:
1. Tenure and Terms of the Loan: The per-day interest rate shall depend on the duration for which the loan is extended to the borrower and the repayment terms specified in the Loan Agreement.
2. Internal and External Costs of Funds: The annualised rate of interest charged shall depend upon the cost at which funds are sourced by the Company. Such cost shall include both external borrowings and internal capital employed in the business.
3. Credit Risk: Credit Risk relates to the potential loss arising from borrower default and shall be assessed based on factors such as the complexity of the loan transaction, size of the loan, geographical conditions, customer segment, sourcing channels, stability of earnings and employment, financial position, past repayment track record, and other relevant factors affecting the cost of the loan and other factors that affect the costs associated with a particular loan account shall be taken into account before informing the final interest rate to a borrower.
4. Profit Margin: The fair profit margin is on the basis of the return expected by the shareholders and the risks involved. The profit margin shall be reasonable to attract fresh capital to sustain growth and be benchmarked with comparable companies. A reasonable level of gearing shall be maintained while arriving at the shareholder return.
5. Prevailing Market Practices: The Board of Directors may also consider the per-day interest rates charged by other NBFCs for similar loan products.
Interest shall accrue only from the date on which the loan amount or relevant part thereof is actually disbursed to the borrower. The Company shall not charge interest from the date of sanction, execution of the Loan Agreement or any earlier date where the funds have not actually been disbursed to the borrower. In case of part-disbursement, interest shall be charged only on the amount actually disbursed and outstanding from the respective date of disbursement. The Company's systems and processes shall be configured to ensure that the date and amount of actual disbursement are appropriately captured for the purpose of interest computation.
Where a loan is disbursed, partly disbursed, prepaid or otherwise repaid during a month, interest shall be calculated only for the period during which the relevant amount remains outstanding, in accordance with the agreed interest calculation methodology disclosed to the borrower. The Company shall not charge interest for any period during which the relevant loan amount was not outstanding with the borrower.
The Company shall ensure that interest, instalments and repayment obligations are calculated with reference to the actual amount disbursed to the borrower, unless otherwise expressly agreed with the borrower and permitted under applicable regulatory requirements.
The Company shall not calculate interest or repayment obligations on the undisbursed portion of a sanctioned loan amount.
Where any instalment or repayment amount is collected in advance, the Company shall ensure that such advance collection does not result in charging of interest on an amount or for a period during which the corresponding loan amount is not outstanding, except to the extent expressly permitted under applicable regulatory requirements and the contractual terms disclosed to the borrower.
The interest rate for credit facilities extended by the Company is driven by the Company’s internal benchmark rate plus the risk premium associated with the borrower/facility.
Risk Premium
The Company shall adopt a risk-based pricing approach for determining the applicable rate of interest for each borrower. The rate of interest may vary depending upon the borrower’s risk profile, credit assessment, repayment capacity, credit bureau score, employment stability, indebtedness level, historical repayment behaviour, geographic profile, sourcing channel and other relevant risk factors. Accordingly, different rates of interest may be charged to different categories of borrowers based on the degree of risk perceived by the Company. It is evaluated based on the following factors:
The Rate of Interest that shall be charged to the customers for availing its loan product shall be mentioned in the Key Fact Statement and the Loan Agreement.
1. Besides interest, the Company may levy additional financial charges such as loan processing fees, penal charges etc., wherever considered necessary.
2. Any changes in charges shall be communicated to borrowers in advance and shall be applied prospectively.
3. The Company may levy fees and charges that are permissible under applicable regulatory requirements and are approved under the Company's Board-approved framework. All such charges shall be reasonable, transparent and appropriately disclosed to the borrower. Penal charges, wherever applicable, shall be levied only in accordance with the Board-approved policy/framework on penal charges and the applicable regulatory requirements. Such charges shall be reasonable and commensurate with the non-compliance or default and shall not be levied in the nature of penal interest. Penal charges shall not be capitalised or compounded, and no further interest shall be computed on such penal charges. The quantum and rationale of penal charges shall be clearly disclosed to the borrower in the Key Fact Statement and Loan Agreement, wherever applicable.
Interest rates would be intimated to the customers at the time of sanction / availing of the loan. The repayment amount shall be communicated to the borrower through the sanction letter and the Loan Agreement.
The Company will mention penal charges charged for late repayment in bold in the loan agreement.
The interest rate shall be non-discriminatory and determined in a fair and transparent manner for borrowers within similar risk categories, in compliance with RBI regulations.
The Company shall ensure that all material terms and conditions relating to interest rates, penal charges and other applicable charges are disclosed to the borrower in a clear and transparent manner and, wherever applicable, in vernacular language or a language understood by the borrower to enable informed decision-making.
All processing, documentation, and other charges levied are explicitly stated in the loan documents. They generally reflect the costs incurred in providing services to customers. Market practices, including those of competitors, are also considered when determining these charges.
Penal charges shall be applicable in cases of default or delay in repayment by the borrower. Penal charges levied by the Company in case of default or delay in repayment shall be reasonable and commensurate with the extent of default. Such charges shall not be levied in the form of penal interest and shall not be capitalised or compounded. Penal charges are intended solely to discourage default and shall not be used as a revenue enhancement measure. The quantum and rationale of such charges shall be clearly disclosed to the borrower in the Key Fact Statement and Loan Agreement.
The Company shall compute and disclose the Annualised Percentage Rate (APR) for all loan products as part of the Key Fact Statement (KFS). The APR shall represent the annualised cost of credit to the borrower and shall include all applicable charges, including interest rate, processing fees, documentation charges, and any other fees or costs associated with the loan. The methodology for calculation of APR shall be in line with applicable RBI guidelines and shall be communicated clearly to the borrower prior to execution of the loan agreement.
The Company shall follow a fair and non-discriminatory approach in determining interest rates and other charges. The pricing of loans shall be based solely on objective criteria such as credit risk, cost of funds, and business considerations. The Company shall not discriminate against any borrower on the basis of gender, religion, caste, region, or any other prohibited grounds, and shall ensure equitable treatment of all borrowers falling within similar risk categories. The Company shall maintain objective and documented parameters for risk categorisation and pricing so that borrowers falling within substantially similar risk categories are treated consistently, subject to legitimate differences arising from product, tenor, security, borrower profile and other objectively relevant factors.
The Company shall provide a Key Fact Statement (KFS) to prospective borrowers for loans to which the applicable RBI KFS requirements apply, prior to execution of the loan agreement. The KFS shall be provided in a language understood by the borrower and shall contain the applicable key facts of the loan, including the Annual Percentage Rate (APR), total cost of borrowing, repayment schedule, applicable fees and charges, penal charges and other material terms as prescribed under applicable RBI requirements.
The contents of the KFS shall be explained to the borrower, wherever required, and an acknowledgement of receipt and understanding shall be obtained in accordance with applicable regulatory requirements.
The KFS shall be consistent with the sanction letter and Loan Agreement. Any fee, charge or other amount which is required to be disclosed in the KFS and is not disclosed therein shall not be subsequently charged to the borrower, except where such charge is subsequently permitted and expressly consented to by the borrower in accordance with applicable RBI requirements.
Where the Company undertakes digital lending activities, the Company shall comply with the applicable RBI Digital Lending Directions, including requirements relating to KFS, cooling-off period, disclosures, customer consent, data protection and grievance redressal. The Company shall obtain acknowledgement from the borrower confirming receipt and understanding of the Key Facts Statement prior to execution of the loan agreement.
The Company shall maintain a robust grievance redressal mechanism for addressing customer complaints related to interest rates, charges, and lending practices. Borrowers may escalate their grievances through the Company’s designated grievance redressal channels. In case the complaint is not resolved within the stipulated time, the borrower may approach the Reserve Bank of India’s Integrated Ombudsman Scheme. Details of the grievance redressal mechanism, including contact details and escalation matrix, shall be made available on the Company’s website and in loan documents.
The Company shall ensure that its loan management, accounting and other relevant systems are configured to give effect to the interest rate methodology and charging practices prescribed under this Policy.
The Company shall periodically review its systems and processes to ensure that interest is calculated on the actual amount disbursed and outstanding for the relevant period and that the system does not result in charging of interest or other amounts contrary to applicable RBI requirements.
Any identified deviation shall be promptly rectified and, where necessary, appropriate corrective and preventive measures shall be implemented.
This Policy shall be reviewed at least annually and also whenever there is a material change in applicable RBI regulations, the Company's business model, loan products, interest rate methodology, technology systems or market conditions.
Any material amendment to this Policy shall be placed before the Board of Directors for consideration and approval. The Company shall also ensure that corresponding changes, wherever required, are implemented in its loan documentation, customer disclosures, systems and operating procedures.