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    Interest Rate Model

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    Vipin Pathak
    The Reserve Bank of India directed all NBFCs to publish interest rates and risk gradation approaches on their websites. The company sets its Reference Lending Rate (RLR) based on cost of funds, business risk, and operating costs. As of April 1, 2009, the RLR was reduced to 15.75% from 16% due to lower borrowing costs. Risk is graded based on product type and customer factors. Product risk is determined by a matrix adding or subtracting basis points from the RLR. Customer risk considers loan-to-value, tenure, location, and usage, with additional charges added to the base rate. The maximum additional risk premium over the base rate and RLR is 7%.

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    Interest Rate Model

    Uploaded by

    Vipin Pathak
    13 views1 page
    The Reserve Bank of India directed all NBFCs to publish interest rates and risk gradation approaches on their websites. The company sets its Reference Lending Rate (RLR) based on cost of funds, business risk, and operating costs. As of April 1, 2009, the RLR was reduced to 15.75% from 16% due to lower borrowing costs. Risk is graded based on product type and customer factors. Product risk is determined by a matrix adding or subtracting basis points from the RLR. Customer risk considers loan-to-value, tenure, location, and usage, with additional charges added to the base rate. The maximum additional risk premium over the base rate and RLR is 7%.

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    The Reserve Bank of India directed all NBFCs to publish interest rates and risk gradation approaches on their websites. The company sets its Reference Lending Rate (RLR) based on cost of funds, business risk, and operating costs. As of April 1, 2009, the RLR was reduced to 15.75% from 16% due to lower borrowing costs. Risk is graded based on product type and customer factors. Product risk is determined by a matrix adding or subtracting basis points from the RLR. Customer risk considers loan-to-value, tenure, location, and usage, with additional charges added to the base rate. The maximum additional risk premium over the base rate and RLR is 7%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    13 views1 page

    Interest Rate Model

    Uploaded by

    Vipin Pathak
    The Reserve Bank of India directed all NBFCs to publish interest rates and risk gradation approaches on their websites. The company sets its Reference Lending Rate (RLR) based on cost of funds, business risk, and operating costs. As of April 1, 2009, the RLR was reduced to 15.75% from 16% due to lower borrowing costs. Risk is graded based on product type and customer factors. Product risk is determined by a matrix adding or subtracting basis points from the RLR. Customer risk considers loan-to-value, tenure, location, and usage, with additional charges added to the base rate. The maximum additional risk premium over the base rate and RLR is 7%.

    Copyright:

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    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    INTEREST RATE & GRADATION OF RISK

    Preamble: Reserve Bank of India vide its notification dated January 2, 2009 have directed all NBFCs that rates of interest and the approach for gradation of risks shall be made available on the web-site of the companies. Rate of Interest: Company is fixing its Reference Lending Rate (RLR) based on the cost of fund, inherent risk of business and cost of operation. Reference Lending Rate of TMFL till 31 March 09 was 16.0 %. Wef 1 April 2009 , in view of the decrease in borrowing costs, the RLR has been fixed at 15.75 % Approach for Gradation of Risk TMFL is primarily in financing activity of vehicles manufactured by Tata Motors Ltd. Broadly the risk of this business would depend on the risk associated with the Product and the Customer. Following Matrix will be used for arriving at product specific Base Lending Rate (BLR) M & HCV Trucks LCV & ICV trucks All Buses & Winger ACE 207 DI MAGIC CAR : RLR minus 100 basis points : RLR : RLR plus 50 basis points : RLR plus 100 basis points : RLR plus 150 basis points : RLR plus 200 basis points : RLR

    Risk associated to customer will depend on various factors like Loan to Value ratio, Tenure of the Loan, Geography (Location), and usage. The Risk factor would be converted into an additional charge and added onto the Base lending Rate (BLR) to give the final IRR for the product. Maximum risk premium for any customer for all risk put together with the BLR will not exceed 7% over the RLR.

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