Pricing Policy: Fees, Penalties & Waivers
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INTRODUCTION
1.0.1 PURPOSE
The purpose of this policy is to prescribe a uniform approach for assessing, collecting, waiving, accounting for, and reporting “Non-Price Price” fees, penalties and premiums for leases and loans across Services Finance Services of GE Capital financial Services (hereinafter referred to as GECFS). The policy establishes minimum acceptable levels for each fee type. The intent is to ensure consistent practices across Services Finance Services, except when explicit, written exceptions are granted, while complying with all applicable legal requirements.
As of the effective date of this policy, the fees discussed herein should, where appropriate, become part of the standard operating procedures and terms and conditions of transactions entered into. Businesses may find it appropriate to assess other types of fees. This policy in no way prohibits or discourages such practices.
GECFS Business Units seeking a blanket waiver for specific fees or permission to establish standard assessment levels below those discussed herein must receive written waiver approval from the Chief Financial Officer or Chief Executive Officer. Fee waivers for individual transactions are detailed in Section 1.8.
In terms of Reserve Bank of India’s (RBI’s) notification No DNBS. 204/CGM (ASR)- 2009 dated January 2, 2009 all NBFCs are required to document their approach to determining the Rates of interest charged to customers for loans and advances. It this regard GECSI has framed a detailed approach, included as Annexure B.
Where possible, definitions around calculating opportunity are provided for each type of fee. The purpose of such definitions is to assist Business Units in measuring the success of the specific fee charge program. GECFS level dashboards will be maintained on significant fee categories using the opportunity definitions provided in this policy.
1.0.2 IMPLEMENTATION
All transactions entered into on or after the effective date (January 1, 2004) shall abide by the provisions of this policy, as adopted by each GECFS Business Unit. Contract language for all transactions entered into after the effective date shall reflect, as appropriate, this policy.
For transactions entered into, or otherwise acquired, prior to the effective date, language in the respective documents shall take precedence to this policy. Where these documents omit specific fees or assessments, this policy shall be enforced, as legally permissible.
For transactions acquired from non-GECFS originators after the Effective Date, language in the respective documents shall take precedence to this policy. Where these documents omit specific fees or assessments, this policy shall be enforced, as legally permissible.
1.0.3 TYPES OF FEES, PREMIUMS & PENALTIES
Practices for the following Fees, Premiums & Penalties are included in this policy:
1.1 Prepayment Premiums & Make Whole Provisions
1.2 Penalties for Late Payments
1.2.1 Late Fees
1.2.2 Default Interest
1.3 Syndication & Participation Fees
1.4 Extension, Restructure & Modification Fees
1.5 Transfer & Assumption Fees
1.6 Administration & Documentation Fees
1.7 Waivers
1.7.1 Up-Front Waivers: Documentation
1.7.2 Back-End Waivers: Fees & Penalties
1.7.3 Operational Waivers & Procedures
1.8 Glossary
1.0.4 SUMMARY OF FEES & PENALTIES: The description of fee and penalties is mentioned in Annexure “A”.
1.1 PREPAYMENT PREMIUMS & MAKE WHOLE PROVISIONS
Definition: |
Prepayment Premiums & Make Whole Provisions are necessary to recoup early pay-off related expenses and serve as a disincentive for customers to early terminate/pay-off a financing. A Prepayment occurs whenever a customer submits funds to GECFS 30 days or more before the contractually scheduled due date. Partial Prepayments, defined as the prepayment of any amount less than the total outstanding principal balance, are also subject to applicable Prepayment Premiums and Make Whole charges to the extent of the amount prepaid,
GECFS’s policy is to match fund fixed rate assets in order to minimize interest rate risk from its portfolio. Make Whole charges are defined as the recovery of the economic cost to GECFS incurred on fixed rate debt as a result of either (i) debt breakage charges or (ii) the cost of carrying fixed debt at rates higher than current money cost rates, due to premature investment payoffs.
Prepayment Premiums are defined as amounts charged based on a percentage of outstanding principal, or amount prepaid in the case of a partial prepayment.
Transactions may include both Prepayment Premiums and Make Whole provisions. |
Opportunity: |
The opportunity for Prepayment Premiums shall be defined as the maximum applicable Make Whole and Prepayment Premium assessed on each transaction that terminates, or has a partial prepayment, greater than 30 days before the contractually agreed upon date. |
1.2 PENALTIES FOR LATE PAYMENTS
Each GECFS Business Unit shall levy Default Interest for Late Payments
1.2.1 DEFAULT INTEREST
|
Definition: |
Default Interest is defined as a contractual increase in the rate of interest charged to a customer in the event of a default. |
| Opportunity: |
The opportunity for default interest shall be calculated as being the incremental earned income based on change in rate on delinquent accounts multiplied by the investment balance adjusted for the period the transaction remains in default. |
1.3 SYNDICATION FEES
Syndication fees include monies collected from the customer and/or investor and premiums (“scrapes”) received from an investor. Due to the complex nature of these transactions and the accounting thereof, definitions and accounting guidelines for Syndication Fees are omitted from this policy.
| Opportunity: |
For syndication fees, Opportunity shall be reported against the target referenced above in Assessment, categorized by the structure of the transaction (i.e. First Loss (“A/B”) vs. Pari Passu). Additionally, Business Units will report the total syndication fee dollars collected divided by the total dollars of assets. |
1.4 EXTENSION, RESTRUCTURE & MODIFICATION FEES
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Definition: |
Extension, Restructure & Modification fees are monies collected from customers resulting from requests to materially change the originally documented deal terms. Typical scenarios resulting in the assessment of Extension, Restructure & Modification feesinclude:
- Request for extension of the maturity date of transaction
- Request for extension on payment terms
- Collateral substitutions
- Collateral releases
- Elimination of guarantees
- Rate changes
- Covenant waivers
- Workouts
|
| Opportunity: |
The Opportunity shall be calculated as follows:
- For deals with a loan/lease balance in excess of INR 200,000, multiply the loan/lease balance modified by the minimum 1.00% (100 basis points) fee.
- For deals with a loan/lease balance equal to or less than INR 200,000, multiply INR 1000 (the minimum fee) by the number of extensions, restructures and modifications granted during the period.
The sum of these two computations represents the opportunity. |
1.5 TRANSFER & ASSUMPTION FEES
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Definition: |
Transfer & Assumptions Fees include monies collected with respect to any direct or indirect transfer of all or any portion of the Collateral or of any interest in the Borrower. These fees may also be known as “Due On Sale” or “Name Change” fees. |
| Opportunity: |
The opportunity shall be calculated as follows:
INR 1000 for each transfer and assumptions request. |
- ADMINISTRATION & DOCUMENTATION FEES
| Definition: |
Administration & Documentation fees are assessed at the closing, renewal or extension of a transaction to offset the costs of documentation and related administrative costs. |
| Opportunity: |
The opportunity shall be calculated as follows:
INR 500 for each deal> |
1.7 OTHER FEES
1.7.1 Customer Service Fees
Customer Service Fees are levied to offset the costs to GECFS of providing additional services to customers. Each business shall develop a Customer Service Fee schedule based on cost analysis, which adequately compensates GECFS for these services. The description of all other fees is provided in Annexure “A”.
1.8 WAIVERS
1.8.1 Up-Front Waivers: Documentation Waivers & Waivers At Closing
Each transaction entered into as of the Effective Date shall be subject to all above mentioned fees & penalties at no less than the minimum standard levels unless explicitly waived, in writing.
Waiver Matrix for GECFS
1.8.2 Delegation of Authority to approve waivers:
Pricing Team, comprising of Pricing Leader, Chief Executive officer, Chief Financial Officer and Business Head, will have authority to formulate matrix for various waivers in different verticals and roll out the matrix to all departments.
- Fee and documentation waivers must be documented and reported, by fee, in aggregate, according to a schedule determined by the Chief Financial Officer or their designee.
- Fee waivers shall be calculated based on the Minimum Fee level prescribed by policy.
- Each Business Unit will establish a written fee waiver policy for amounts less than INR 50,000. Fee waivers must be documented and reported, by fee, in aggregate, according to a schedule determined by the Chief Financial Officer or their designee.
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1.9 Glossary
Administrative/Nuisance fee (billing address, duplicate invoices, etc.) |
Fees charged to customers to provide extra administrative support (change in billing addresses, duplicate copies of invoices, repeated payoff quotes, document copies, documentation fee for processing prepayments, etc.) |
Arrangement fees (broker fees on financing arrangements) |
Fee received for arranging a financing transaction between a client and an investor or lender other than GE. Immediate Income assuming no risk is retained. Since fee has similarities with Syndications/Participations, same CDR coding is recommended. |
Cost Containment Fees |
Fees charged for the recovery of GECFS expenses incurred during the origination, underwriting, and/or restructuring of a transaction. |
Covenant Waiver fee |
Fee assessed to the customer upon violation of a financial covenant as previously documented and agreed to between GE and our customer. |
Default rate of interest |
Contractual increase in interest rate charged to customer in the event of a payment default. |
Direct Deposit Fee (ADD): |
Fee charged to set up a direct deposit structure for a client
|
Documentation Fees |
Fee assessed upon the close of a transaction generally charged to cover document preparation. Fee also includes documentation fees charged for renewals. |
Extension fee |
A type of restructuring charge related to a request to extend payment terms or to extend the maturity date on a transaction. |
External Costs: |
External costs are items such as Appraisal expenses, UCC Search & Filing fees, Environmental Fees, Survey Fees, External Legal Fees, etc. |
Good Faith Deposits (forfeited) |
An upfront fee assessed to the customer prior to approval/commitment by GECFS used to cover the costs associated with closing and funding a transaction including legal fees/UCC costs/title searches, etc. This fee is generally refundable to the client if GE decides not to do the deal. The fees are generally forfeited by the customer decides to walk from the deal. |
In-House asset mgmt/appraisal |
Fee charged for providing in-house asset management valuations for a client in lieu of a client being required to obtain a 3rd party appraisal. |
Internal Costs: |
Internal Costs are costs involving internal resources such as: In-House Appraisals, In-house legal costs, site visit expenses, etc. |
Late Payment fee |
Fees charged to clients for late payments of principal and/or interest |
Make Whole |
Fee assessed on prepaid loans or leases to compensate for the costs of breaking or refinancing debt |
Non-Electronic Funds Submittal: |
Fee charged to cover the costs of processing check and wire payments that are not done by Autopay. |
NSF Returned check fee |
Handling Fees charged on customer checks returned for insufficient funds (NSF) |
Partial Collateral Release fee |
A type of restructuring fee assessed upon customer request to prepay a portion of a transaction and release a portion of a deal's collateral. |
Prepayment Premium |
Fee assessed when all or part of a deal is paid prior to the schedule date of the transaction, usually expressed as a percentage of the remaining principal balance. |
Rate Lock Fees (forfeited) |
Fee charged (not additional interest rate) to lock a fixed interest rate in for a specific amount of time prior to funding. Fee is generally refundable if the deal closes, or is declined by GECFS. Fee is forfeited if client opts not to pursue financing. |
Real Estate Tax Service Fee: |
Fee Charged to cover cost of monitoring real estate tax payments for a customer. |
Restructuring/modification/ amendment fee |
Fee assessed upon customer request resulting in a change in the originally documented deal terms. Typical types of changes include collateral changes/substitutions, elimination of guarantees, extension of payment terms, rate changes, or other restructured terms. |
ANNEXURE “A”
NPP POLICY: SEGMENT : HFS
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PARTICULARS |
BASIS OF ASCERTAINMENT OF CHARGES |
Prepayment Premium
(a) Fixed Rate Transactions
(b) Floating Rate Transactions |
Make Whole + 2% on outstanding amt/tenor
2% on outstanding amt/tenor |
Leases
(a) Pre-36 months
(b) Post –36 months |
|
Late Payment penalties
Default interest |
Retail: 36% per annum of overdue amount |
Syndication Fee |
Not Applicable |
Extension, Restructure & modification fee |
1.0% on principal outstanding (INR 1000 min.) |
Transfer and Assumption Fee |
INR 1000/- |
Administration and documentation Fee |
INR 1000 |
Customer Service Fee
(a) NSF Checks
(b) Document Copies |
|
Miscellaneous Fee
(a) Commitment / Proposal Charges
(b) Letter of Credit
(c) Origination offset Fee |
- 0.5% of the sanction amount
- N.A.
- Based on actual costs incurred
|
NPP POLICY: SEGMENT: CAG
|
PARTICULARS |
BASIS OF ASCERTAINMENT OF CHARGES |
Prepayment Premium
(a) Fixed Rate Transactions
(b) Floating Rate Transactions |
Make Whole + 1% on outstanding amt/tenor
1% on outstanding amt/tenor |
Leases
(a) Pre-36 months
(b) Post –36 months |
|
Late Payment penalties
Default interest |
Current interest + 2% of overdue amount |
Syndication Fee |
Market Rate |
Extension, Restructure & modification fee |
1.0% on principal outstanding (INR 1000 min.) |
Transfer and Assumption Fee |
INR 10000/- |
Administration and documentation Fee |
INR 10000/- |
Customer Service Fee
(a) NSF Checks
(b) Document Copies |
|
Miscellaneous Fee
(a) Commitment / Proposal Charges
(b) Letter of Credit
(c) Origination offset Fee |
- Min 0.5% of the sanction amount for all deals greater than $ 25 MM
- N.A.
- Based on actual costs incurred
|
NPP POLICY : CFS
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PARTICULARS |
BASIS OF ASCERTAINMENT OF CHARGES |
Prepayment Premium
(b) Floating Rate Transactions |
(a) Make Whole + 1% on outstanding amt multiplied with remaining Average Tenor
(b) 1% on outstanding amt multiplied with remaining
Average Tenor |
Leases
(a) Pre-36 months
(b) Post –36 months |
(a) N.A.
(b) N.A. |
Late Payment penalties
Default interest |
Current Interest + 2.0% of deal rate. No grace days |
Syndication Fee |
Market Rate |
Extension, Restructure & modification fee |
1.0% (Waiver approval required for all amounts)
|
Transfer and Assumption fee |
INR 10000 |
Administration and documentation Fee |
INR 10000
|
Customer Service Fee
(a) NSF Checks
(b) Document Copies |
(a) INR 500/-
(b) INR 1000/- |
Miscellaneous Fee
(a) Commitment / Proposal Charges
(b) Line Fee
(c) Origination offset Fee |
(a) Min 0.5% of Sanction amount for all deals greater than $25MM
(b) N.A
(c) Based on actual costs incurred |
* Fees/charges mentioned above may change based on customer negotiations and will be subject to necessary approvals.
ANNEXURE B
Approach to determining the rate of interest to be charged for loans and advances
In terms of Reserve Bank of India’s (RBI’s) notification No DNBS. 204/CGM (ASR)- 2009 dated January 2, 2009 all NBFCs must document their approach to determining the Rates of interest charged to customers for loans and advances.
The interest rate charged to borrowers comprises the Base interest rate plus Risk Premium.
The methodology of determining the Base Interest Rate and Risk Premium is as follows:
1. Base interest rate- The base interest rate depends on two main components--
- The prevailing interest rates at which the company is able to borrow funds from the market
- Other internal cost of the company
2. Risk premium-
The risk premium is determined after assessment of risks related to the transaction and the borrower. In general, higher the perceived risks, higher the premium.
Assessment of risks is done on the following parameters
• Macroeconomic environment: The current economic scenario and political environment prevailing in the country
- Industry Performance, present and expected
• Capacity of the borrower to repay: Some of the parameters used to judge the capacity of the borrower to repay are:
- Borrower’s ownership and management track record
- Borrower’s business model, products and services offered, service/product value proposition & business strategy.
- Performance of the borrower, present and expected, vis a vis its peers
- Financial analysis of the borrower with respect to its profitability, liquidity, solvency and gearing. The financial analysis includes a thorough analysis of the historical performance, cash flow forecasting, debt repayment capacity, contingent liabilities etc
• Quality of asset: The value vis a vis the loan amount and marketability of the asset financed.
• Security: Risk premium is also based on the comprehensive security package which may include creating security over the assets financed, any additional collateral as warranted, guarantees and post dated cheques.
Structure: The structure of the transaction and payment mechanism also determines the risks associated. Weighted average life of the loan is also considered as one of the parameters of risk.
The borrower and the associated transaction should meet the internal KYC and compliance norms of the Company.
It may be noted that the weight age applied to each of the above mentioned parameters may vary between transactions and also reflects our perception of the risk involved. The above-mentioned parameters are indicative in nature. Additional parameters may be applied for specific transactions or borrowers.
The interest rates charged to clients is communicated in the sanction letter and incorporated in the loan agreements executed by the borrower.
The rate of interest communicated in the sanction letters to clients is on per annum basis payable monthly/quarterly or as may be commercially determined between the borrower and the Company.
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