The Reserve Bank of India (“RBI”), vide its Master Direction – Reserve Bank of India (NonBanking Financial Company – Scale Based Regulation) Directions, 2023, as amended 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, 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.
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.
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 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:
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.
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.
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.
In compliance with RBI Circular on Key Facts Statement (KFS) for Loans & Advances dated 15 April 2024 and RBI Digital Lending Directions, as amended from time to time the Company shall provide a Key Fact Statement (KFS) to all borrowers prior to execution of the loan agreement. The KFS shall include details such as the Annualised Percentage Rate (APR), total cost of borrowing, repayment schedule, penal charges, and recovery mechanisms. The Company shall also provide a cooling-off/look-up period to borrowers, during which they may exit the loan by paying the principal and proportionate charges without any penalty, in accordance with applicable regulatory guidelines. 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.
This Policy shall be reviewed at least annually or earlier if required due to changes in RBI regulations, business model or market conditions.