Toyota Financial Services, India | 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.

I. 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.

II. Governance Mechanism for Interest Rate:

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 lease products, based on advice, discussion and consideration given by the 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 average annualised interest rates for the month to be charged to the customers.
- This interest rate model is to be updated periodically based on the weighted average cost of funds (COF), operating expense (OPEX) cost and risk cost.

III. Factors considered for Interest Rates:

The average annualised interest rate for each business segment, is calculated based on the following factors:

Table 1: Interest Rate Model:

#	Cost Factors
a	Weighted average cost of funds
b	Operating expense cost
c	Risk cost
d	Return on Assets

#	Market Factors
a	Competition
b	Organizational objectives
c	Model mix

COF, OPEX Cost and Risk Cost varies every month which is communicated during the monthly Pricing Committee meeting. Pricing below the COF is prohibited except in exceptional cases involving demonstrable risk mitigation and with explicit Board or Board-designated committee approval.

Table 2.a: Description of the cost factors:

Sl. No.	Parameter	Description
a	Weighted average cost of funds	Weighted Average Cost of Funds (WACOF) refers to the average cost incurred by the Company to raise funds from various sources (short-term loans, long-term loans, ECBs, NCDs, CPs, etc.) calculated by weighing the cost of each source of funds in proportion to its share in the total borrowings. It reflects the overall funding cost and serves as a key input in the determination of lending interest rates.
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 the net write off cost of all products calculated as per origination profitability (OP) model and in adherence to regulatory provisions.
d	Return on Assets	The Return on Assets (ROA) is the return expected by the Company on its assets.

Table 2.b: Description of the market factors:

Sl. No.	Parameter	Description
a	Competition	Prevailing market interest rates offered by peers, considered to keep pricing competitive within the risk-based framework.
b	Organisational objectives	Organisational objectives influencing pricing to support volume and market penetration while maintaining profitability.
c	Model mix	Composition of vehicle models, with pricing adjusted to promote focus models and align with strategic business objectives.

IV. Approach for gradation of risk and Key Consideration Points:

Business segment to add a risk premium on the average annualised interest rate arrived as per the Interest rate Model above. The interest rate applicable to an individual customer may vary, within the overall pricing range approved by the Board, based on any one or a combination of the factors listed below:

Profile of the borrower (like IP (Income Proof), NIP (Non-Income Proof))
Nature of the product or scheme
Nature of the vehicle/asset category
Location/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 (Transitional support measures for dealers taking over other Toyota dealerships) (for wholesale finance/ dealer funding)
Bureau Score
Any other factors that may be relevant in a particular case

Any geographic or segment-level differentiation in pricing shall be data-driven, supported by empirical credit cost and loss experience, and approved by the Pricing Committee.

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.

V. Penal charges / Default charges / Additional Finance Charges:

If penalty is charged for non-compliance 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.

VI. 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.

VII. Discounting, Deviation and Exception framework:

All discounts or deviations from standard pricing must adhere to the rate waiver approval authority matrix (revised periodically post approval from MD & CEO and Deputy CEO) and must be supported by documented justification.

External factors influencing customer rates like dealer or OEM subvention, as outlined in the Policy Scope & Applicability, are outside the scope of this framework.

VIII. Policy Review and Amendment:

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

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Schedule of Charges

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

Retail:

Charge Type	Details
Processing Fee^*	Up to 3.00% of the loan amount or a minimum of Rs. 5000/- + taxes
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 + taxes
	25 months and above	3% of the part payment amount + taxes
Loan Foreclosure Charges (On the loan principal o/s)	Within 6 months from the date of 1^st EMI		6% + taxes
	07 to 24 months from the date of 1^st EMI		5% + taxes
	After 24 months from the date of the 1^st EMI		3% + taxes
Legal / Collection / Repo / Parking & Other Charges	As per actuals + taxes
Loan cancellation & Rebooking charges	Rs. 5,000 + taxes
Duplicate NOC Charges	Rs. 750/- + taxes
Repayment Swap Charges	Rs. 750/- + taxes
Charges for documents like Statement of Account / Repayment Schedule / Foreclosure Letter & Welcome Kit	Nil
Documentation Charges	Rs. 350/- inclusive of taxes
Valuation Charges (For Used Car)	Rs. 800/-* + taxes *Applicable only for disbursed cases where physical valuation is extended to the customer
Stamp Duty Charges	As per applicable laws of the state
Loan Statement Charges (per statement)	Nil

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
Pre-payment Charges	Nil
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
Commitment Charges	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
WCTL / ITL Foreclosure Charges	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

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 1^st EMI	3% + taxes
	within 07 to 24 months from the date of 1^st EMI	3% + taxes
	after 24 months from the date of the 1^st 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/- + taxes
Repayment Swap Charges	Rs. 1,000/- + taxes
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/- + taxes
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.

LOAN PRICING & INTEREST RATE GOVERNANCE POLICY