Interest Rates Policy

Background :

The Reserve Bank of India (RBI) pursuant to its circular number DNBS.PD/CC.No.95/03.05.002/2006-07 dated 24th May 2007 and DNBS. 204/CGM (ASR)-2009 dated 2nd January 2009, has advised all Non-Banking Financial Companies (NBFCs) to comply with certain procedures with respect to the setting of interest rates for loans and leases.

Toyota Financial Services India Limited (the Company) has adopted an interest rate policy to comply with these guidelines, outlining governance mechanisms and key considerations for determining interest rates and other charges.

Business Model :

The Company’s business model has the following characteristics:

  • The Company offers new car loan, used car loan, and car lease to retail / corporate customers.
  • Wholesale finance / dealer funding is offered to Toyota/Lexus dealers to cover their business requirements. Term loan is also offered to Toyota/Lexus dealers for infrastructure development and working capital requirements.
  • Loans are structured based on customer profile, cash flows, income evaluation, credit history, occupation, intended usage of vehicle (personal/ commercial).
  • Where the customer has no credit history, loans and lease facility are sanctioned after detailed evaluation of customer profile and basis personal discussions with the customer.
  • The rate of interest for the same product and tenor availed during the same period by different borrowers need not be standardized. It could vary from borrower to borrower depending upon consideration of any or combination of above factors which are covered under gradation of risk approach as below.
  • Credit decisions are multi-layered with employees having different levels of credit underwriting authorities.
  • A clear set of operational risk control procedures are embedded in the credit policy to ensure process adherence and efficient risk mitigation.
  • Besides normal interest, the Company may levy penal charges for delay or default in making payments of any dues. These penal charges may vary for different products.

Governance Mechanism for Interest Rate:

    The Company shall have the following governance structure for the approval and implementation of this policy
  • Board of Directors
    • The Board approves the interest rate policy and reviews it annually.
  • Pricing Committee
    • The Company decides on the interest rates for each of its loan and car leasing products, based on advice, discussion and consideration given by the monthly Pricing Committee. The Pricing Committee comprises of senior management of the Company and is chaired by the MD & CEO.
    • Business verticals should develop their respective pricing framework using the Interest Rate model as defined in Clause III below and decide the spreads to arrive at the applicable annualised interest rates for the month to be charged to the customers.
    • This interest rate model is to be updated monthly based on the weighted average cost of funds (COF), operating expense (OPEX) cost and risk cost.

Factors considered for Interest Rates:

The annualised interest rate for each business segment, is calculated as an aggregation of the following cost factors:

Table 1: Interest Rate Model:
# Particulars Rate in %
a Weighted average cost of funds-- (a) XX%
b Operating expense cost- (b) XX%
c Risk cost-- (c) XX%
d Return on Assets-- (d) XX%
e Annualised interest rate to be charged (Sum of a to d) XX%

COF, OPEX Cost and Risk Cost varies every month which is communicated during the monthly Pricing Committee meeting.

Table 2: Description of the cost factors:
Sl. No. Parameter Description
a Weighted average cost of funds Weighted average cost of funds would be based on the cost of borrowed funds, tenor premium, market liquidity, refinance avenues, cost of borrowing, cost of capital required, RBI policies on credit flow, offerings by competition, cost of disbursement, subventions, and subsidies available, industry trends etc. The Company maintains liquidity reserves / buffer including regulatory requirements prescribed by RBI as liquidity coverage ratio which generate return lower than the return on business assets creating a negative carry. These liquidity buffers help to manage liquidity risk and are essential cost however may vary depending upon the liquidity needs of the Company from time to time.
b Operating expense cost It includes various kinds of fixed and variable costs like employee’s expenses, operations costs, sales and marketing expenses, collection cost etc.
c Risk cost It consists of credit risk cost and net write off cost of all products.
d Return on Assets The Return on Assets (ROA) is the return expected by the Company on its assets.

Approach for gradation of risk and Key Consideration Points :

  • The interest rate would be based upon considerations of any or combination of a few or all factors listed out herein:

    • Profile of the borrower (like IP (Income Proof), NIP (Non-Income Proof) )
    • Nature of the product or scheme
    • Nature of the vehicle/asset category
    • Product/ asset wise delinquency
    • Tenure of Loan
    • Nature of business (like fleet, FTU (First Time User), demo etc.)
    • Segment of business (retail, wholesale finance/ dealer funding and lease)
    • Nature and value of primary and secondary collateral securities, guarantee
    • Retail Penetration commitment (for wholesale finance/ dealer funding)
    • Industry trends
    • Any other factors that may be relevant in a particular case

  • The annualized rate of interest* generally charged to our customers shall be as below:

    Table 3: Business segment wise Rate Range:
    Business Segment Minimum Rate of Interest% Max Rate of Interest%
    New Car Loans (Including FTU) COF Up to 21%
    Used Car Loans COF Up to 21%
    Wholesale Finance / Dealer Funding / Term Loan COF Up to 21%
    Commercial / Fleet COF Up to 21%
    Car Lease COF Up to 21%

    *Annualized rate of interest does not include processing fees, subvention received from dealer or any such income in relation to said loan.

    #Interest rates are subject to change, as deemed necessary, with the approval of the Pricing Committee.

  • ⮚ The Company offers a fixed rate of interest for all retail loans as agreed with the customer at the time of entering the contract.
  • ⮚ The Company offers a floating rate of interest for wholesale finance and a fixed/floating rate of interest for dealer term loans benchmarked on the cost of funds (COF) which shall be reset from time to time with prospective effect.
  • ⮚ For leasing, the Company communicates the EMI/Rentals as agreed with the customer at the time of entering the contract.
  • ⮚ The Company shall disclose the interest rate applicable to a loan transaction in the loan documentation, and EMI applicable to a car lease transaction in the lease documentation, and the customer will not be compelled to sign the agreement unless the same is acceptable.
  • ⮚ The Company, besides normal interest, may levy other financial charges like processing fees, cheque bouncing charges, late payment charges, re-scheduling charges, pre-payment / foreclosure charges, part disbursement charges, cheque swap charges, security swap charges, charges for issue of statement account etc., wherever considered necessary.
  • ⮚ These charges would be decided upon by the respective business / function heads in consultation with operations, finance, compliance and legal head or by the relevant committee.
  • ⮚ Any revision in these charges would be implemented on a prospective basis with due communication to customers.
  • ⮚ Besides the above charges, stamp duty, service tax / GST and other taxes & CESS would be collected at applicable rates from time to time.
  • ⮚ Interest rate, penal charge, EMI, any fees, any charges for relevant products or facilities would be intimated to the customers through the sanction letter and / or loan agreements and /or supplementary lease schedule.
  • ⮚ Any change in the terms and conditions including interest rates or any other charges during the lifetime of loans or facilities would be communicated to customers in a mode and manner deemed fit by the Company.

Penal charges / Default charges / Additional Finance Charges:

  • If penalty is charged for noncompliance of material terms and conditions of loan contract by the borrower, it shall be treated as penal charges and shall not be treated in the form of penal interest on the advances. Penal charges will not be capitalized i.e., no further interest will be computed on such charges.
  • This will not be applicable for the normal procedures for compounding of interest in the loan account.
  • The Company maintains reasonable penal charges and is commensurate with non-compliance of the material terms and conditions. The Board approved penal charges for retail, wholesale finance / dealer funding and lease is attached as annexure 1.
  • The Company shall impose reasonable penal charges for non-compliance of material terms and conditions of the loan contract without being discriminatory within a particular loan / product category and shall disclose the quantum and reason in the loan agreement / key fact statement and shall display on the website.
  • The penal charges in case of loans sanctioned to individual borrowers for purposes other than business shall not be higher than the penal charges applicable to non-individual borrowers for similar non-compliance of material terms and conditions.
  • Reminders / letters for non-compliance of material terms and conditions of loan sent to borrowers shall mention the applicable penal charges. Further any instances of levy of penal charges & reasons thereof shall be duly communicated to the customer. Penal charges applicable for retail, wholesale finance/ dealer funding and car leasing are available in the schedule of charges which is annexed to the policy.

Communication Framework :

  • The Company will communicate the effective rate of interest to customers at the time of sanction / availing of the loan through the acceptable mode of communication
  • The interest rate policy will be uploaded on the website of the Company and updated from time to time.
  • Changes in the EMI, tenure and charges for existing customers would also be communicated to them through various modes of communication such as email, letters, etc.

POLICY REVIEW AND AMENDMENT :

This policy shall remain in force unless modification is approved by the Board.

Schedule of Charges

Schedule of charges for retail, wholesale finance/ dealer funding and lease are detailed below.

  1. Retails :
    Charge Type Details
    Processing Fee* Up to 3.00% of the loan amount or a minimum of Rs. 5000/-
    Late Payment Charges 24% Annually
    2% per month on unpaid EMI
    Repayment / EMI Bounce Charges Rs. 500/- per return cheque
    Part Prepayment Charges (Eligible only after 7 months of EMI payment) 7 to 24 months 5% of the part payment amount with applicable taxes
    25 Months and above 3% of the Part payment amount with applicable Charges
    Loan Foreclosure Charges (On the loan principal o/s) Within 6 months from the date of 1st EMI 6% + Taxes
    Within 07 to 24 months from the date of 1st EMI 5% + Taxes
    After 24 months from the date of the 1st EMI 3% + Taxes
    Legal / Collection / Repo / Parking & Other Charges As per actuals + Taxes
    Loan cancellation & Rebooking charges Rs. 5,900/-
    Duplicate NOC Charges Rs. 750/-
    Repayment Swap Charges NIL
    Charges for documents like Statement of Account / Repayment Schedule / Foreclosure Letter & Welcome Kit NIL
    Documentation Charges Rs. 350/-
    Stamp Duty Charges As per Applicable Laws of the State
    Loan Statement Charges (per statement) NIL
  2. Wholesale finance/ Dealer Funding:
    Charge Type Details
    Processing Fee 0.01%- 0.25% of the loan amount
    Processing Fee - AWS Rs. 10,000 per additional wholesale support (AWS)
    Renewal Fee Rs. 20,000 per renewal
    Penal Charges Up to 4% p.a. on overdue amount, if delay in payment beyond grace period
    Commitment Charges 0.25% p.a. on unutilized portion of new /used car limit, if average utilization of limit is < 50% in a month
    Nil, if average utilization of limit is > 50% in a month
    WCTL/ITL EMI Late Payment Charge 2% per month on unpaid EMI
    WCTL/ITL EMI Bounce Charges Rs. 500 per bounce
    WCTL / ITL Foreclosure Charges Nil, if closed after 12 months of disbursement
    2.5% on POS, if closed within 12 months of disbursement
    Stamp Duty Charges As per applicable laws of the State
    Stock Audit, Legal, ROC, CERSAI, Valuation, Title search, Parking, Information utility & other charges As per actuals + Taxes
    Charges for documents like Statement of Account / Repayment Schedule / Foreclosure Letter/ Repayment Swap Charges. Nil
    Audit non-compliance charges (Stock audit) Up to 4% p.a. on total outstanding, monthly
  3. Leasing:
    Charge Type Details
    Lease Management / Processing Fee Rs. 2,500/- or up to 3.00 % of lease value whichever is higher
    Late Payment Charges / Overdue rate 24.00% per annum of outstanding instalments post due date
    Repayment / EMI Bounce Charges Rs. 1,000/- per transaction
    Part Prepayment Charges Not Applicable
    Early Termination Amount / Prepayment Charges (principal o/s) Method 1: On Present Value Method:
    Present value of outstanding future rental for balance months discounted with discounting rate Deal rate less 3.00%
    Method 2: on book value (principal outstanding) basis:
    within 6 months from the date of 1st EMI 3% + taxes
    within 07 to 24 months from the date of 1st EMI 3% + Taxes
    After 24 months from the date of the 1st EMI 2% + Taxes
    Commitment cost 12% p.a. on the advance amount to supplier from the date of payment to supplier till the date of commencement of lease rental
    Legal / Collection / Repossession / Parking & Incidental charges As per actuals + Taxes
    Lease cancellation & Rebooking charges Rs. 5,000/- + Taxes
    Duplicate NOC Charges Rs. 750/-
    Repayment Swap Charges Rs. 1,000/-
    Foreclosure Letter & Welcome Kit NIL
    Documentation Charges NIL
    Stamp Duty Charges As per Actual, subject to state laws-to be procured by lessee directly
    Re-schedulement Charges (Change in EMI/ Tenure/ Cycle Date) NA
    Valuation charges Rs. 1,000/-
    Registration Charges for Borrowers’ ECS Mandate (Lease repayment) NIL
    Interest Certificate NIL
    Duplicate copy of Agreement/ Statement of Account/ Repayment Schedule (per statement) NIL
    Excess Wear & Tear charges As per actuals, based on vehicle inspection at return
    Legal / Collection / Repossession / Parking & Incidental charges As per actuals + Taxes
    Excess Mileage charges Based on customer tenure, vehicle make & model

    Note:

    • Penal charges in accordance with RBI circular.MCS.REC.61/01.01.001/2023-24 dated December 29, 2023, on ‘Fair Lending Practice - Penal Charges in Loan Accounts’.
    • Any deviation from the above specified charges to be approved by the relevant authority/committee.
    • The Company follows interest first allocation method for allocating customer repayments.