Background
The Reserve Bank of India (RBI) pursuant to its circular number DNBS.PD/CC.No.95/03.05.002/2006-07 dated 24th May 2007 and DNBS. 204/CGM (ASR)-2009 dated 2nd January 2009, has advised all Non-Banking Financial Companies (NBFCs) to comply with certain procedures with respect to the setting of interest rates for loans
Keeping in view the above guidelines, the Board of Directors (Board) of Toyota Financial Services India Limited (the Company) has adopted Interest rate policy which outlays the governance mechanism and key consideration points to be followed in determining interest rate and other charges and also communication and disclosure of these to its clients.
Business Model
The Company has a differentiated business model to deliver efficiencies and contain risk based on the requirements of the target segment. Our business has the following characteristics:
- New car loan and Used car loan to retail/ corporate customers.
- Wholesale Finance/ Dealer Funding is offered to Toyota Dealers to cover their business requirements.
- Loans are structured based on customer needs, cash flows, income evaluation, credit history, assets of the customer, customer profile, occupation, intended usage of vehicle (personal/ commercial), etc.
- Where the customer has no credit history, loans are sanctioned after detailed evaluation of customer profile and basis personal discussions with the customer the credit decisions are taken.
- Credit decisions are centralised but multi-layered with employees having different levels of credit underwriting authorities.
- A clear set of operational risk control procedures are embedded in the Credit Policy to ensure process adherence and efficient risk mitigation.
Governance Mechanism for Interest Rate
The Board shall have the oversight for the Interest Rate Policy of the Company. The Company decides on the interest rates for each of its loan product from time to time, based on advice, discussion and consideration given by the Pricing Committee within the purview of Interest Rate Policy. The Pricing Committee comprises of senior management of the Company and chaired by MD & CEO.
The Company shall disclose the interest rate applicable to a loan transaction in the loan documentation and the customer will not be compelled to sign the same unless the same is acceptable.
Business verticals can have their internal pricing mechanism under the overall framework of board approved interest rate policy for company in deciding the spreads to arrive at final rate. Changes to business level internal pricing, if any, would need to be approved by the ‘Pricing Committee’.
Factors considered for Interest Rates:
| Sr.No | Factor | Description |
|---|---|---|
| 1 | Weighted Average cost of funds | Weighted Average cost of funds would be based on the cost of borrowed funds, tenor premium, market liquidity, refinance avenues, cost of borrowing, cost of capital required, RBI policies on credit flow, offerings by competition, cost of disbursement, subventions and subsidies available, industry trends etc. The Company maintains liquidity reserves/ buffer including regulatory requirements prescribed by RBI as Liquidity Coverage ratio which generate return lower than the return on business assets creating a negative carry. These liquidity buffers help to manage liquidity risk and are essential cost however may vary depending upon the liquidity needs of the company from time to time. |
| 2 | Opex Cost | It includes various kinds of fixed and variable costs like employees expenses, operations costs, sales and marketing expenses, collections cost etc. |
| 3 | Risk Cost | It includes credit risk and default risk in the products and from the customer segment. |
| 4 | ROA | The Company strives to achieve certain level of ROA based on its business plans and objectives. |
Approach for gradation of risk and Key Consideration Points
- Interest rates would also be based on the customer specific risk factors such as customer segment, job and education profile, income and assets, past repayment track record, tenor of customer relationship, external credit rating, nature and value of primary and collateral securities, guarantee, ancillary business relationship and opportunities, etc. The interest rate would be based upon considerations of any or combination of a few or all factors listed out herein.
- Interest rates would also be based on the customer specific risk factors such as customer segment, job and education profile, income and assets, past repayment track record, tenure of customer relationship, external credit rating, nature and value of primary and collateral securities, guarantee, ancillary business relationship and opportunities, etc.
- The Company shall adopt discrete interest rate method, whereby the rate of interest may vary by customers depending on the factors listed above, even in case of same product with same tenor availed during the same period. The present rate of interest charged to our customer is upto 21% per annum.
Following is segment wise description:
Business Segment Rate of Interest % New Car Loans (Including FTU) Up to 21% Used Car Loans Up to 21% Wholesale Finance/ Dealer Funding Up to 17% Commercial / Fleet Up to 17% - The Company can offer the rate of interest on fixed or floating rate basis as agreed with the customer at the time of entering the contract. The Company may besides normal interest, may levy other financial charges like processing fees, cheque bouncing charges, late payment charges, re-scheduling charges, pre-payment / foreclosure charges, part disbursement charges, cheque swap charges, security swap charges, charges for issue of statement account etc., would be levied by the Company wherever considered necessary.
- Besides the above charges, stamp duty, service tax / GST and other taxes & cess would be collected at applicable rates from time to time. Any revision in these charges would be implemented prospective basis with due communication to customers. These charges would be decided upon by the respective business / Function heads in consultation with Operations, Finance, Compliance and Legal Head.
- Interest rate, additional interest, penal interest, any fees, any charges for relevant products or facilities would be intimated to the customers through the sanction letter and/or loan agreements
- Any change in the interest rates, EMI or loan tenors linked to interest rate, or any other charges during the lifetime of loans or facilities would be communicated to customers in a mode and manner deemed fit by the company.
Communication Framework
- The Company will communicate the effective rate of interest to customers at the time of sanction / availing of the loan through the acceptable mode of communication.
- Interest Rate Policy would be uploaded on the website of the company and updated from time to time.
- Changes in the rates and charges for existing customers would also be communicated to them through various modes communication such as email, letters, etc.
POLICY REVIEW AND AMENDMENT
This policy shall remain in force unless modification approved by the Board.