Jaro Finance

[Formerly known as Nambiar Finance and Leasing Pvt Ltd]

Interest Rate Policy


Reserve Bank of India, in its Notification No. DNBS. 204/ CGM (ASR) – 2009 dated 2nd January 2009 vide Circular No. DNBS (PD) C.C. No. 133 /03.10.001/ 2008-09 dated 2nd January 2009 issued a direction in regard to fixing up the Interest Rate Policy by NBFCs.

According to the Policy, each NBFC’s Board shall approve an interest rate model for the Company considering relevant factors such as cost of funds, margin, risk premium etc., basis which the interest rates to be charged on loans and advances shall be determined. Further, RBI has directed that the rate of interest and approach for gradation of risk and the rationale for charging interest for different category of borrowers should also be communicated to borrowers/ customers in the sanction letters to them. The interest rate model is required to be made available on the website of the Company so as to enable the customers to understand the logic and methodology of the lending rates charged to them. In compliance with the said RBI directives, the interest rate model for the company is given below:

Determination of Interest Rates on Loans & Advances

Product Category :-

The company is into extending finance to Micro & Small Enterprises (MSEs) and Group (predominantly women using JLG-model) coming from unorganised segment, wherein risk of default is perceived to be high with virtually no backing of any tangible security to fall back upon for recovery purpose.

Tenure of Repayment :-

At present, the product offering consist mainly of secured and unsecured loans to MSEs & individuals carrying of business activity, with repayment period varying from case to case basis, depending upon cash flow of the prospective borrower.

The focus will be to keep it on an average around 24 months, which may go up to maximum period up to 60 months or more in exceptional cases. The product category also consists of unsecured loans to Group Borrowers for periods ranging usually from 12 – 24 months. The clientele of the company can be categorized into high risk category. Therefore, considering the product offering and the absence of tangible securities in most cases, the risk of recovery can be considered to be in the medium to high category and accordingly the risk premium would be reckoned.

Cost Factor :-

For the present, the rationale is based on reasonable assumptions towards cost of funds, administrative/operational cost and risk premium which will be subject to review when felt necessary. Further, the company would be offering fixed rate of interest, whereas the borrowed 2 funds would be linked to Benchmark rate (i.e.; Prime Lending Rate or MCLR) of respective Financial Institution. In such a scenario the existing portfolio will always be exposed to increase in cost of borrowed funds whereas yield from our portfolio will remain at the same level.

Customer Requirement :-

The final lending rate would take the above factors into consideration and in addition factors such as profile of the borrower, their repayment track record, tenure of relationship with the borrowers, future potential , nature of primary and secondary security offered etc. Such information would be gathered on the basis of information furnished by the customers, market intelligence gathered by our CDOs / CUs and Credit Information Reports preferably from two agencies besides the competition pricing.

Profit Margin :-

The rate of interest is arrived on reasonable assumption towards the average cost of funds, administrative costs, risk premium and a reasonable margin for the Company.

Change in External Market condition :- The rate of interest will get reviewed depending on the change in market condition which includes change in lending rates by RBI or by our Lenders, political scenario, sector analysis and other condition which could impact directly or indirectly our cost of borrowing.

Other charges and Features :