Interest Rate Policy
Transparent disclosure of our interest rate structure, pricing methodology, fees, and asset classification — published in accordance with RBI guidelines for NBFCs.
Pricing Process
Loan pricing is the process of determining the interest rate for granting a loan. The interest rate is calculated based on the following factors:
Interest Rate:UFin decides the interest rate based on the cost of funds, operational expenditure, credit/business risks, and desired ROA. With pricing deregulation, UFin adopts a differential approach to pricing (Prime lending rate being the rate at which high creditworthy borrowers can borrow) based on the customer segment (such as the nature of employment, income segment, age, location, etc.) and the customer's profile (including employment, income, age, location, credit history, and vintage with the lender). Additionally, prevailing market rates are factored in to remain competitive.
Prime Lending Rate: UFin considers the following cost indicators to arrive at the reference lending rate:
1. Cost of Funds
A. Borrowing: UFin borrows funds through various forms (term borrowing, NCDs, subordinated debt) and considers the weighted average cost of borrowing, including the processing fee paid on the borrowing.
B. Equity: UFin allocates equity to run the business and factors in the cost of such equity. The cost of equity can be calculated using the CAPM* or the return agreed upon at the time of the equity raise. CAPM can be used in equity deals as well. The relative weight of borrowings and equity in funded liabilities is considered in the calculation.
C. Fundraising Costs: These include costs related to fundraising such as brokerage/advisory/market intermediation, rating, hedging, legal services, commissions, and exchange listing.
2. Operational/Opex/Overhead Costs: These include costs related to operations, employees, physical infrastructure (fixed and variable costs), sales and marketing, technology, among other things.
3. Loan Loss Reserve: The average write-off percentage of the last 3 to 5 years will be considered.
4. Profit Margin: The profit margin will be decided based on the growth rate and the market scenario.
5. Risk Premium: The risk premium is calculated based on the past portfolio quality.
The rate covering the following aspects: Interest Rate = Finance Cost + Operational Expense + Loan Loss Reserve + Risk Premium + Expected Profit Margin
| Interest Rate | As per Calculation | Proposed Range Minimum | Proposed Range Maximum |
|---|---|---|---|
| COF | 18.40% | 17.00% | 18.00% |
| Operational Exp | 8.39% | 8.00% | 8.50% |
| Loan Loss Reserve | 0.66% | 0.00% | 0.50% |
| Profit Margin | 1.00% | 0.75% | 0.50% |
| Risk Premium | 0.50% | 0.25% | 0.50% |
| Total | 28.95% | 26.00% | 28.00% |
A. For first-cycle customers, the ROI is 28%.
B. For second-cycle customers:
* Without any single delay in repayment, the ROI is 27%.
* With any single delay in repayment, the ROI is 28%
C. For third-cycle customers:
* Without any delay in repayment, the ROI is 26%.
* With a delay in history, the ROI is 28%.
Fee and charges
Late/delayed payment: No penalty is being levied on delayed payments.
Pre-closure Charges: The company is not levying any prepayment penalty or pre-closure charges to its customers, While customers preclosing the account.
Processing Fee: UFIN is availing term loan facilities from various lenders including NBFCs, and financial institutions for onward lending to microfinance customers. On average, UFIN is being charged with processing fees ranging between 1% to 1.50% for the loans availed. On the disbursements front, UFIN for disbursing a loan to a customer has operating charges (Operating charges include Sourcing cost, Credit report cost, Loan Processing Cost, and Documentation Cost) of about 1%. Accordingly, 2% of the loan amount as a processing fee is to be collected from the customers by.
Income and expenses assessment of household
Income assessment of house hold plays a vital role in onboarding customers and ensuring the repayment is made proper throughout the tenure. Customer income and expenses has to be captured in UFin Income assessment sheet which has various sources of income of household and the expenses made by the house hold. For each customer this has be captured and when customer found to be satisfactory then customer has to be sourced.
Assessment of Income expenses of house hold: Once the income expenses of the house hold are obtained from the customers FOIR (Fixed Obligation Income Ratio) of the customers house hold has to be calculated. If the monthly Income to EMI (Current EMI + UFin loan EMI) ratio should be less than or equal to 50% and the monthly Income to expenses should less than or equal to 50%. This are the eligible loan customers. If any of the customers are not meeting this FOIR 50% then they are not eligible for availing loan from Ufin.