Interest Rate Policy

Reserve Bank of India (“RBI”) Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (RBI/DNBR/2016-17/45 Master Direction DNBR. PD. 008/03.10.119/2016-17) and Fair Lending Practice - Penal Charges in Loan Accounts [RBI/2023-24/53 DoR.MCS.REC.28/01.01.001/2023-24] issued by the Reserve Bank of India, all NBFCs are required to have a Board of Directors (“Board”) approved interest rate model and a policy on penal charges.

Keeping in view the RBI's guidelines as cited above, guidelines as amended from time to time, and the good governance practices, Vaibhav Vyapaar Private Limited (“Company”) has framed the following internal guidelines, policies, procedures and interest rate model for its lending business which has been approved by its Board.

A. Objective of the policy

1. Establish Benchmark Rates

Determine benchmark rates for various borrower segments and outline the principles and methodology for determining spreads, leading to the final rates charged to borrowers.

2. Transparent Communication of Interest Rates

Clearly communicate the annualized rate of interest to borrowers, including the approach for risk gradation and the rationale for applying different interest rates across borrower categories.

3. Accessibility and Transparency

Publish the interest rates and the risk gradation methodology on the company's website to ensure accessibility and transparency.

4. Principles for Penal Charges

Outline broad principles for levying penal charges in a fair and consistent manner.

B. Interest Rate

The average yields and the rate of interest under each product offered by the Company are decided from time to time, giving due consideration to the following factors:

• The cost of funds on the borrowings, as well as costs incidental to those borrowings, taking into consideration the average tenure, market liquidity, refinancing avenues etc.
• Inherent credit and default risk in our business, particularly trends with sub-groups / customer segments of the loan portfolio.
• Nature of lending, for example the associated principal / tenure.
• Nature and value of securities and collateral offered by customers (if applicable).
• Risk profile of customer - professional qualification, stability in earnings, financial positions (salary range, type of employment, number of active loans, outstanding balance, etc.), past repayment track record with us or other lenders, credit score of customers, etc., and
• Industry trends, that is determined by the rate of interest offered by other competitor NBFCs.

The Company considers the aforementioned factors while arriving at a rate of interest. Additionally, under this Interest Rate Policy:

• a. The Company shall adopt a discrete interest rate policy which means that the rate of interest for the same product and tenor availed during same period by different customers may not to be standardized and may vary for different customers depending upon consideration of any or combination of above factors.
• b. The interest rates offered would be on fixed basis. Changes in interest rates would be decided at any periodicity, depending upon market volatility and competitor review.
• c. Annualized rate of interest would be intimated to the customer and the Company shall mention the penal charges and other important charges in the sanction letter and the loan agreement.
• d. Interest rates would be intimated to the customers at the time of sanction / availing of the loan and EMI apportionment towards interest and principal dues would be made available to the customer.
• e. Besides normal interest, the Company may levy additional / penal charges for delay or default in making payments of any dues. These additional or penal charges for different products or facilities would be decided by the respective business / product heads and duly approved by the Board.
• f. Besides these charges, stamp duty, GST and other cess would be collected at applicable rates. Any revision in these charges would be from prospective effect. These charges would be decided upon by respective business / product heads in consultation with operations, finance and legal heads and duly approved by the Board.
• g. Besides interest, other financial charges like processing fees, cheque bouncing charges, pre- payment/ foreclosure charges, cheque swaps, cash handling charges, RTGS/ other remittance charges, commitment fees, charges on various other services like issuing NO DUE certificates, NOC, letters ceding charge on assets/ security, security swap & exchange charges etc. would be levied by the Company wherever considered necessary. Besides the base charges, the GST and other cess would be collected at applicable rates. Any revision in these charges would be with prospective effect. A suitable condition in this regard would be incorporated in the loan agreement. These charges would be decided upon collectively by the management of the Company and duly approved by the Board.
• h. While deciding the charges, the practices followed by the competitors in the market may also be taken into consideration.
• i. Claims for refund or waiver of charges / penal charges / additional interest would normally not be entertained by the Company and it is at the sole discretion of the Company to deal with such requests.
• j. Interest rate models, base lending rate and other charges, and their periodic revisions are made available to our prospective and existing customers through our website and mobile application.

C. Interest Rate Model

The interest rate for credit facilities extended by Vaibhav Vyapaar Private Limited is driven by benchmark rate of Vaibhav Vyapaar plus the risk premium associated with the borrower/facility.

Benchmark Rate

Vaibhav Vyapaar benchmark rate for onward lending is based on Marginal Cost of Lending Rate (MCLR) concept a function of the following factors:

• Weighted average cost of funds
• Administrative and operational costs
• Tenor premium
• Profit margin

Risk Premium

The Credit Risk Premium for all loan products is determined for different customer segments and collateral types (as applicable) to account for potential credit loss risks. It is evaluated based on the following factors:

1. Credit and Default Risk: The likelihood of the borrower defaulting on the loan.
2. Historical Performance: Trends observed in similar homogeneous client groups.
3. Borrower Profile: Personal and financial characteristics of the borrower.
4. Repayment Track Record: The borrower's history of repaying loans.
5. Credit Bureau Score: Creditworthiness as reflected in their credit score.
6. Geographic Location: The borrower's location and its associated risks.
7. Location Delinquency Trends: Default trends in the borrower's area.
8. Customer Indebtedness: The borrower's existing debt obligations.

The range of Risk Premium will normally remain within range of 8-12%, depending upon the above factors.

The Rate of Interest that shall be charged to the customers for availing its loan products will range between a minimum of 17.5% p.a to maximum of 36% p.a.

D. Approach for Risk Gradation

The Company grants credit facilities only to those customers who it believes have both the intention and the ability to discharge their obligations.

1. To execute smooth underwriting process, the Company carries out different processes as per Know Your Customer guidelines and allocates credit grade for each customer.
2. When assessing credit transactions, the Company focuses on critical principles like history of the Borrower, Financial Leverage, Liquidity and Sources of Cash, education and stability and Profitability of Operations.
3. The determination of a customer's credit grading is generally distinguished by the asset type and its use and is mostly based on four general Categories, Character, Capacity, Capital and Collateral.
4. The individual assessment criteria for the customer credit grading can be classified into each of these aspects. All credit submissions will be classified into LoanFront Risk Score varying from 100-900.
5. The interest rate applicable to each loan account, within the applicable range shall also be assessed on a case specific basis, based on evaluation of various other factors such as:
• Interest rate trend prevailing in the money market.
• Long term prospects of business with the borrower.
• Loan specific costs including operations and collection costs.
• Company's cost of borrowing.
• Customer negotiations / deviations, and
• Upfront charges.

Depending on the product, the interest rates would be offered on fixed basis and charged on reducing balance method.

E. Interest rate communication

Interest rates would be intimated to the customers at the time of sanction / availing of the loan. Repayment schedule as per the product availed by the customer and will be made available to customer in the sanction letter as well as the Loan Agreement.

The rates of interest are subject to change as the situation warrants and are subject to the discretion of the management and/or changes to extraneous cost factors which affects the setting up of the interest rate.

The Company will mention penal charges charged for late repayment in bold in the loan agreement.

F. Charges related loan application Processing, Documentation, and Other incidental charges

All processing, documentation, and other charges levied are explicitly stated in the loan documents. These charges vary depending on factors such as the loan product, exposure limit, customer segment, and geographical location. They generally reflect the costs incurred in providing services to customers. Market practices, including those of competitors, are also considered when determining these charges.

G. Penalty Charges

Penal charges are applicable in cases of non-compliance with the material terms and conditions of the loan contract by the borrower. The following key principles apply:

• No Penal Interest on Defaults: The Company does not levy penal interest on defaults.
• No Capitalization of Penal Charges: Penal charges will not be capitalized, meaning no additional interest will be calculated on these charges. However, this does not affect the normal compounding of interest on the loan account.
• Additional to Overdue Interest: Penal charges are separate from the overdue interest, which is calculated at the contracted rate of interest on the outstanding principal for the delay period.
• Legal Recourse: The imposition of penal charges does not preclude the Company from pursuing legal action, including repossession of the asset, after issuing a notice to the borrower.

The amount and rationale for penal charges shall be clearly communicated to customers through the loan agreement and sanction letter. Moreover, they are explicitly disclosed son the company websites in the Schedule of Charges section.

H. Schedule of Charges

I. Loan products profile of the Company

Product 1: - Personal Loans-Self Employed (Flexi Loans)

Product 2: - Personal Loans - Salaried