1. Preamble:

BEE PEE JAY FINANCE LTD. (“us”, “we”, or “Company”) is a non-banking financial company (NBFC) duly registered and licensed by the Reserve Bank of India (RBI) to engage activities relating to lending.

As per the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 (RBI/DoR/2023-24/106 DoR.FIN.REC.No.45/03.10.119/2023-24) issued by the Reserve Bank of India, Board of each Non-Banking Financial Company shall adopt an Interest rate model, taking in to account relevant factors such as cost of funds, margin and risk premium etc., and determine the rate of interest to be charged for loans and advances. Further, the Master Direction states that the rate of interest and the approach for gradation of risk and the rationale for charging different rates of interest for different category of borrowers should be disclosed to the borrower or customer in the application and communicated explicitly in the sanction letter issued to them.

2. Objective of this policy

  • To arrive at the benchmark rates to be used for different category of borrower segments(if applicable) and to decide on the principles and approach of charging spreads to arrive at final rates charged from borrowers.
  • Communicate the annualised rate of interest to the borrower along with the approach for gradation of risk and rationale for charging different rates of interest to different categories of borrowers(if applicable).
  • Make available the rates of interest and the approach for gradation of risks on the website of the companies.

3. Charges, interest rate and fees

The Company intimates the borrower, the loan amount, the rate of interest and any other fees which is applicable for the loan at the time of sanction of the loan along with the tenure, the amount and the due dates of the monthly instalments. The rate of interest is arrived at based on the weighted average cost of funds, average customer acquisition cost, administrative and operational costs, risk premium and profit margin. 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 has a say in the setting up of the interest rate. However, the interest rate for each individual customer shall not be changed during the tenure of the loan agreement.

Our charges, interest rate and fees are determined taking the following factors into consideration:

  1. Income Criteria – we assume that customers typically have lower income than the prime customers targeted by commercial banks, hence their needs are not met by banks. One characteristic is also variable cash flows unlike, say, salaried persons who have consistent cash flows.
  2. Credit History – This segment may have little or no prior credit history with organised lenders. This requires detailed credit appraisal for the relatively small value loans. It will be appropriate to state that this segment will have higher credit risk and hence, higher credit losses.

Other criteria into consideration:

  • Cost of capital/ debt;
  • Operational costs (including file handling costs);
  • Credit risk;
  • Geography;
  • Customer risk categorization;
  • Collection costs;
  • Loan tenor;
  • Nature and value of collateral (if any);
  • Opportunity cost;
  • Margin percentage;
  • Asset Liability management.

We  intimate the borrower, the loan amount and rate of interest at the time of sanction of the credit along with the requirements of suggested minimum monthly principal down that will be part of the borrower’s monthly payment obligation along with the interest charged and any applicable fees and charges.

Our approach has the following characteristics:

  1. Lending with the web-site and mobile application for customers’ convenient. This reduces the time taken to process loan applications. Loans are structured based on customer needs, cash flows and assets with the customer. We offer personalised solutions.
  2. Higher operating costs (due to lower average loan size) and loss rates as compared to equivalent products offered by banks.
  3. Credit decisions are decentralised with employees having credit underwriting authorities.
  4. Credit risk is managed by ensuring that underwriters adhere to a set of centrally developed but flexible policies. At the central level, management uses analytics and economic judgment to set these guidelines and monitor the risk equation.
  5. The entire application, appraisal process and disbursement process is managed using a workflow software that enables quick information sharing and also addresses operational risk issues

Risk principles:

  1. Regardless mentioned above, our model of interest, fees and charges based on different list of issues, including the average costs of funds, unallocable costs, administrative costs, expected loan performance and profit margin;
  2. The loans to be offered by us are for period as may be required by the Borrower and subject to the nature of each specific loan product.
  3. The decision to give a loan and the interest rate, fees and charges applicable to each loan account will be assessed on a case to case basis, based on multiple parameters such as the borrower profile, repayment capacity, borrower’s other financial commitments, past repayment track record if any, loan to income ratio and employment stability. Such information is gathered based on information provided by the borrower, credit reports and bank statements.
  4. The borrower shall be entitled to prepay any amount and in such case we can charge prepayment charges;
  5. Besides interest, other financial charges like processing fees, origination fees, cheque bouncing charges, line usage fees, late payment charges, withdrawal or cash advance fees, charges for issue of statement account etc., would be levied by us wherever considered necessary and are adequately disclosed in the loan agreement.
  6. Besides these charges, stamp duty, service tax and other cases would be collected at applicable rates from time to time as communicated in the documentation provided.

Associated costs

The following costs may be incurred for each loan disbursement.

  1. Acquisition costs – The cost of sales channel and sales promotion expenses;
  2. Verification costs – A verification of information supplied by customer in application form such as residence and employment details may be required. Additionally, verification may be required through credit bureaus;
  3. Legal / valuation charges – expenses are incurred towards verification of title documents, valuation of property / vehicle / jewellery, verification of assets etc.;
  4. We may use the services of specialized agencies, such as a registered chartered engineers / valuers / lawyers to provide valuation and legal opinion. In such cases, to defray these expenses, we will collect application fees from customer at the time of application. This will be non-refundable in nature;
  5. Credit appraisal costs – we need to invest in competent resources that can carry out credit appraisal of the customer’s application;
  6. Technology costs: Financial services business requires extensive investment in Hardware, software, storage and analytics for efficient operations of the business. These investments are ongoing in nature given the rapid changes in the technology industry and given the consumer expectations. It may be noted that most of these expenses are incurred irrespective of the outcome of the customer’s application. For example, verification costs are incurred even if the customer’s application is finally rejected by the company.  The company will cover some of these costs through a processing fee payable at the time of loan sanction;
  7. Funding costs – lender uses a mix of debt and equity to fund loans. This funding needs to match the tenor of the loan and involves costs;
  8. Servicing cost (processing fee) – This includes cost of managing repayments, books of accounts and addressing any customer queries on an ongoing basis;
  9. Collection costs – Effort is required to call / address customers who may default in their repayments and prepare remedial plans;
  10. Management costs – This would cost of the Management, IT infrastructure and software licenses and other overheads;
  11. Record keeping – Documents pertaining to loans have to be stored in safe custody as these are legal documents;
  12. Customer Service – This includes cost of servicing customer requests such as interest certificate, statements, address change requests and other miscellaneous queries from customers;
  13. Loan Losses and Provisions – The retail loans business works on a portfolio management model. Based on the Product / Customer mix, the company needs to create provisions for bad loans and write off loans that are not recoverable;
  14. Commission – This may include composition of several cost items that are required for loan processing;
  15. Expedited decision Fee – is required to cases where processing prioritization is higher than in common case;
  16. Early Repayment Fee – this should cover costs of non-scheduled processing of repayment;
  17. Transfer Fee – this may include costs for payment transactions;
  18. Extension fee – used to cover efforts required to extend the loan (including verification charges);
  19. Late Payment Fee – this includes costs for loses processing.

The distribution & operating costs to service are high and get even more amplified due to the small lending size of each transaction.

4. Approach for Risk Gradation

Bee Pee Jay Finance LTD. grants credit facilities only to those customers who have both the intention and the ability to discharge their obligations. To execute smooth underwriting process the Company carries out different processes as per Know Your Customer guidelines and allocates credit grade for each customer. When assessing credit transactions, the Company focuses on critical principles like history of the Company or Borrower, Financial Leverage, Liquidity and Sources of Cash, Profitability of Operations and Collateral being provided. 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. The individual assessment criteria for the customer credit grading can be classified into each of these categories.

All credit submissions will be classified into four categories: “A” – Excellent, “B” – Superior, “C” – Acceptable and “D” – Marginal.

5. Processing /documentation and other charges

All processing / documentation and other charges recovered are expressly stated in the Loan documents. They vary based on the loan product, exposure limit, customer segment, geographical location and generally represent the cost incurred in rendering the services to the customers. The practices followed by other competitors in the market would also be taken into consideration while deciding the charges.

6. Penal charges

  • The Company may collect penal charges for any delay or default in making payments of any dues. These penal  charges for different products or facilities would be decided by the Company from time to time.
  • No claims for refund or waiver of such charges would normally be entertained by the Company and it is the sole discretion of the Company to deal with such requests if any.

7. Review of Policy

The Policy shall be reviewed once in a year or in between if required due to changes required in the model, for example any addition/deletion of a particular component forming part of benchmark calculation.

8. Disclosure This Policy is be made available on the website of the Company and may be published in the newspapers in accordance with the Company’s Fair Practices Code and the guidelines of RBI.