Demand and Call Loan Policy

Introduction

Zerodha Capital Private Limited (the “Company”) is a Company limited by shares incorporated under the Companies Act 1956. The Company is registered U/s 45-IA of the Reserve Bank of India Act, 1934 as an Investment and Credit Company and categorized under Base Layer.

The Company is engaged in carrying the lending activity including Loan against securities and Loan against Mutual funds.

This policy is prepared in line with the requirements prescribed by Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 and various RBI notifications / directions [“RBI Regulations”] issued in this regard.

Policy on Demand / Call Loans

There has been keen competition amongst many players in lending and borrowing markets and products are evolved as per the customer requirements and benchmarked to offering by the competition.

Lending Process is also dependent upon the risk profile of the customer. The option for annulling and repayment of the loan is only with the customer and the company as a lender may not have any such option to call for early repayment except where default exists/Risk Presume and recalling option is exercised.

Demand/Call loans offer better flexibility to both customer and lender in handling the credit requirements. Keeping the benefits in view and in order to exploit the business opportunities the demand loans may open up and in order to offer better flexibility to both customer and the company in handling the credit requirements and giving option to the company to call back the loan on demand, the company intends extending demand / call loans as detailed out in the policy. The Demand / Call Loans can be extended under Trade Advances, Loan against Shares or Securities or any other tangible assets, etc. as determined by the Credit Appraisal and Sanctioning authority along with the directions of the Board of Directors. However, the company shall offer Demand/Call Loans to be disbursed on the Loan Against Securities Product.

The policy is prepared in compliance with RBI regulations namely Para 28 of the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023

Definitions

The definitions provided hereunder are for reference only. Definitions provided by Reserve Bank of India, as amended from time to time, shall supersede the definitions provided hereunder:

1. Companies in the Group – It includes an arrangement involving two or more entities related to each other through any of the following relationships:
   Subsidiary – parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter-promotee (as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997) for listed companies, a related party (defined in terms of AS 18), Common brand name, and investment in equity shares of 20% and above.
2. Cut-off date - It shall refer to a date specified in the loan agreement within which the company shall demand the loan back or review the performance of the loan/credit facility within the timeline as determined in the policy. In case nothing is determined, the date shall represent the date at the end of the stipulated period.
3. Demand / Call Loan – It is a loan that a lender can be required to be repaid in full at any time.
4. Public Deposit – It shall have the same meaning as defined in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 2016, as amended from time to time.
5. Stipulated Period – It is the period within which the Demand / Call would be made for repayment.
6. Standard Asset – It shall mean the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business.
7. Non-Performing Asset (NPA) – It shall mean:
   1. an asset, in respect of which, interest has remained overdue for a period of 90 days or more;
   2. a demand or call loan, which remained overdue for a period of three months or more from the date of demand or call or on which interest amount remained overdue for a period of three months or more;
   3. a bill which remains overdue for a period of 90 days or more;
   4. the interest in respect of a debt or the income on receivables under the head 'Other Current Assets / Other Financial Assets' in the nature of short-term loans / advances, which facility remained overdue for a period of 90 days or more;
   5. any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of 90 days or more;
   6. In respect of loans, advances, and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower / beneficiary when any of the above credit facilities becomes a non-performing asset.
8. Sub-Standard Asset – It shall mean:
   1. an asset which has been classified as non-performing asset for a period not exceeding 18 months;
   2. an asset where the terms of the agreement regarding interest and / or principal have been renegotiated or rescheduled or restructured after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled or restructured terms.
9. Doubtful Asset – It shall mean:
   1. a term loan, or
   2. a lease asset, or
   3. a hire purchase asset, or
   4. any other asset, which remains a sub-standard asset for a period exceeding 18 months.
10. "Loss Asset" shall mean
    1. an asset which has been identified as loss asset by the company or its internal or external auditor or by the RBI during the inspection of the Company, to the extent it is not written off by the Company and
    2. an asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non-availability of security or due to any fraudulent act or omission on the part of the borrower.

Aim and Objectives of the Policy

The objective of this policy is to lay down a broad framework for the Demand / Call Loans provided by the Company with respect to following specific parameters:

1. Period
2. Sanction
3. Performance Review
4. Roll-Over
5. Repayment
6. Interest Rates
7. Income Recognition, Asset Classification & Provisioning
8. Exposure Limits
9. Collaterals

A Detailed summary of the terms of the facility shall be provided in the Key Fact Statement ("KFS") enclosed with the Sanction Letter and Agreement containing but not limited to the:

1. Facility Amount
2. Tenure
3. Interest Rate
4. Annual Percentage Rate
5. Penal and Other Charges
6. Details of GRO and place for arbitration, etc.

Period

1. The Demand / Call Loan can be sanctioned for a minimum of 3 days and a maximum of 1 year.
2. For sanction of Demand / Call loans having validity beyond 1 year, the Exceptions Handling clause of this policy shall be referred to.

Grace period

Grace period is a period of 30 days after the end of your loan tenure of 12 months.

Criteria for Loans/Facility

Demand/call loans would be considered by the company both under secured loans as well as unsecured Loan segments.

The demand/ call loans can be considered under business loans, trade advances, inventory funding, loan against shares & securities etc. as determined by Credit Appraisal and Sanctioning authority under the guidance of the Board of Directors.

Credit Policy & Approvals

Zerodha Capital’s main marquee product would be the Loan Against Shares product (hereafter stated as Loan/Facility) for its clientele for which the Credit Policy approval would be as stated in the following paragraphs and may also consider Lending against Mutual Funds, based on the assessment of the Credit Team.

The client will receive a loan amounting to 45% of the value of the collateral or pledge. For example, if the client pledges securities from Group-1 or direct equity-oriented mutual funds in demat form (with a minimum AUM of 50 Cr) worth Rs. 1,00,000, they will be eligible for a loan of Rs. 45,000. The concern mutual funds should be from growth category having no lock in period.

Approving authority matrix for sanctioning the loan is mentioned in the ‘Annexure 1’ of the policy.

Credit Policy guidelines are as follows

1. The company shall conduct a due diligence on the creditworthiness of the borrower which will be an important parameter for taking decision on the application. The assessment would be in line with the company’s credit policies, norms and procedures in respect thereof.
2. The borrower would be informed in the English or vernacular language or a language as understood by the borrower (provided a declaration has been obtained from the borrower at the time of application) by means of the sanction letter or otherwise the amount of loan sanctioned by physical/digital means of communication. The said letter shall contain the terms and conditions including the annualized rates of interest and method of application thereof and shall obtain an acceptance from the borrower on the said sanction letter.
3. The Company shall make available a copy of the loan agreement on the Company’s dashboard under the personalized login of the client, along with a copy of all enclosures quoted in the loan agreement to the borrower at the time of requisition by borrower or brief terms should be made part of sanction letter. The Loan Agreements are also to be sent to the borrowers through email. The company shall ensure that the loan agreements and enclosures furnished to all borrowers contain the terms and conditions and the rate of interest in the form of a term sheet, which shall be annexed to the loan agreement. The borrower will be also provided with a Key Fact Statement at each time of grant of loan facility/renewal/roll over/changes therewith containing essential features of the facility at that point in time.
4. Limit is set after reviewing client’s financial background, client’s holdings in his Depository Participant account, a credit score and a credit report from one of the 4 Credit Bureaus / Credit Information Company’s in India, and such other financial documentation proof provided by the client. Information from his KYC Application will also be used which is received during onboarding of the client. The KYC / AML Policy shall always be in line with this Demand Call Policy, and both will be subject to change from time to time.
5. Credit appraisal memo shall be prepared for every new client and same shall be taken into consideration at the time of finalizing limit.
6. For a prospective client, the Company shall do a diligence with respect to Credit Information Companies or any such other watch out Investors lists provided by RBI, any Government Authority or any other institution of which the Company may be a member of, the Company will at it’s sole discretion decide whether to provide a loan or not.
7. Risk Categorization shall be done based on financial documents provided, depository participant account holdings and any such other assets owned by clients. The Risk Categorization shall also be done based on the Credit Limit received by the client based under the points under Point “d” above. The KYC/AML Policy shall always be in line with this Demand/Call Loan Policy.
8. On monthly basis, interest payment shall be traced of each client. In case of non-payment, it shall be informed to the management and accordingly action shall be taken.
9. Enhancement shall be done only after reviewing client’s past history which includes interest repayment on timely basis and shall be extended only on explicit consent from the client.
10. For renewal of the facility/additional drawdown the client shall be provided with a fresh KFS containing the details of the interest rate (whether same as previous or a higher/lower rate), Tenure, Amount, Annual Percentage Rate, Penal Charges, Other Charges, etc. provided the validity of the Agreement as entered initially has not expired.
11. Disbursement shall be made only in the bank account submitted for at the time of opening of Demat and trading account. If the borrower requests to change the bank account it can be done but only after the new Bank Account is KYC compliant .

Sanction Process

For availing the sanction facility, the borrower shall execute the Master Loan Agreement and other necessary documents, declarations, Power of Attorneys, Key fact statement, etc. (if any) as may be required in respect of the sanctioned facility. The Credit and Sanction team will carry out the credit appraisal of documents and then the facility will be sanctioned subject to the approval Matrix as stated in Annex 1.

Given the nature of these loans, the Company shall ensure that (i) Stringent KYC measures are being followed, (ii) Robust credit risk analysis is being done on the borrower before sanction, and (iii) the Sanction and disbursal of Demand / Call loans are within the overall Liquidity Risk Management criteria of the Company.

The Board of Directors may appoint a person / department designated to ensure compliance with laid down policies & procedures on Sanction, KYC & PMLA, Authorization structure etc. Until such appointment, the responsibility of the same would rest with the Head of Business operations of the Company.

Notwithstanding anything in this Policy, any form of Sanction to the Companies in the Group shall require approval of the Board of Directors of the Company.

Tenure and Call back of loans

1. The demand/call loan will be sanctioned for a period up to 12 months from the date of disbursal of the loan in case of Demand Loan Facility or as per the terms agreed between the company and the borrower.
2. Every additional withdrawal or top-ups shall not be considered as new loan. And the term of the additional withdrawal/top-up shall not extend the term of the original loan agreement.
3. The Manager/Senior Manager/ Other prescribed Authorities shall record specific reasons in case the tenure of loan for any client is beyond the period of 12 months from the date of sanction. Loans approved from September 2024, will have a 12-month term without the option for renewal. However, for clients onboarded prior to September 2024, the loan term is 12 months with an automatic renewal for another 12 months.
4. In case no call / demand is made prior to the expiry of stipulated period/Cut-off date determined, then the loan shall be deemed to be called/ demanded on such expiry date/Cut-off date and shall be repaid accordingly (unless the contrary is not put forth in the agreement agreed by the client and the company)
5. Record specific reasons in writing at the time of sanctioning demand or call loan, if the cut-off date for demanding or calling up such loan is stipulated beyond a period of one year from the date of sanction.
6. Suitable clauses empowering such demands/ calls made for repayment would be incorporated in the loan agreements.
7. The mode and authority of making the demand or call for repayment of the loan would be as decided, documented and adhered to in the agreement.
8. Notices would be given to clients in the form of Emails AND/OR Mobile notifications / SMS’s AND/OR web based online notifications in the client’s login in the login platform of the client where he/she would avail the product of the Company. The time duration of each Notice would vary with each incident as prescribed under the Master Loan Agreement.
9. The Penal Charges would amount to a flat charge as highlighted in the KFS.
10. The Company shall release the securities/ other assets held as collateral for the facility on repayment in full as per the terms stated in the Fair Practices Code and the internal policies of the company.

Interest Rates

1. Interest rates will be determined as per the trends prevailing in the market, amounts of money that it can bring in by itself, and as per the company’s cost of borrowing.
2. The interest would be applied on monthly basis. Generally, the interest should be serviced on monthly basis. The interest will be collected by the company on a monthly payment basis which shall be specified in the terms and conditions of the agreement. Any amount collected above the interest amount would be adjusted towards the principal amount.
3. Interest run will be done on a monthly basis
4. Monthly outstanding balance will be inclusive of interest.
5. Posting of interest run is done on the Last day of the respective month which shall become due and payable by the 7th of the next respective month.
6. Demand / call loans may be considered on Floating rate basis pegged to any anchor rate as may be agreed upon. Interest rate would be decided on a case-to-case basis. Any changes in the interest rates considered for calculation of interest amount will be notified to the customers immediately.
7. Any variation in the rate of interest shall be notified to the customer from time to time and shall be effective from such date as may be intimated by the company.

The rationale for charging different rate of interest (i.e. premium/discount over the reference rate) shall depend on the risk gradation of the client, tenure of the loan and type of the loan. The approach for gradation of risk is based on factors such as borrower profile, available security, client’s reputation/positioning in the market, past track record, financial standing, etc. Applicable rate of the interest will be on annualized basis and payable as per the agreed terms and as highlighted in the agreement.

Tax deducted at source (TDS)

TDS is deductible on interest under Section 194A of the Income Tax Act 1961.

• All customers who are liable to deduct the TDS must pay TDS as per applicable rate for the interest being paid.
• Once returns are filed, customer must provide TDS certificates in Form16A generated from the income tax website via email to “[email protected]”.
• TDS credit is given to client on the basis of credit received in 26AS.

Alternatively, digitally signed TDS certificates can be emailed to “[email protected]”.

Review or Renewal of Loans

1. The demand loan facility would be due for renewal at the expiry of the loan tenure or at any time as per the application of the client as specified at the time of loan sanction. The renewal of the loan facility would be at the sole discretion of the lender.
2. The renewal of the Demand Loan Facility as aforesaid shall be on the terms and conditions at the given date.
3. At least 7 (Seven) days prior to the end of the stipulated period, the loans would be reviewed to decide on whether demand / call should be made on due date or further renewal of the loan either in full or part to be considered for any period, not exceeding 12 months. The same shall be documented.
4. In case the loan is renewed, then it should be considered as a new demand / call loan although the same may continue under same customer/ loan account number. Necessary renewal papers would be obtained.
5. The automatic renewal shall be made for one successive loan tenure. Once, automatic renewal made for the loan, such outstanding loan amount shall be repaid before grant of any further loan. The automatic loan renewal is only applicable to the earlier clients. In case the loan has not been repaid or closed even after following due procedure and sufficient warnings post the expiry of the loan term , with the grace period of 30days given to the borrower and if not the lender shall be entitled to invoke the pledge/collateral.

Maximum amount for each of the demand/ call loan and the aggregate amount of the demand / call loan would be determined by the Credit Appraisal and Sanctioning authority.

Loan Repayment

1. Maximum amount for each of the demand/ call loan and the aggregate amount of the demand / call loan would be determined by the Credit Appraisal and Sanctioning authority.
2. The loan shall be repayable unconditionally on demand at the lender’s discretion and without giving any reasons whatsoever.
3. The loan can also be paid by the customer at any time before the expiry of the loan period and no pre-payment charges shall be applicable.
4. The notice giving requirement for both the Company as well as the Borrower shall be a minimum of 3 days (Notice Period) for intended repayment / demanding / calling for repayment. During the notice period, no penal charges shall be levied.
5. In case the repayment is not made within the above stated notice period, then Penal charges as determined by the board and communicated in KFS shall be charged, over and above the original interest rate, shall be levied and collected from date of demand / call till its repayment.

Classification as Non-Performing Assets (NPA)

In case the interest is not serviced on due date or the loan is not paid off after being called up / demanded, then the loan would be treated as Non-Performing Asset (NPA) if such overdue status continue for more than 90 days from for the financial 2024-25 and would be provided for according to the policy of the company. The borrower wise NPA classification would also be applicable although no call or demand is made for any particular loan.

Performance Review

All the Demand / Call loans having stipulated period beyond 6 months shall be subjected to review of performance at the end of 5 months. The review shall include parameters as may be laid down by the Company, but must include:

• Credit Risk pertaining to the Borrower
• Collateral value and attached risks to valuation
• Continued feasibility of funding, in terms of Liquidity Management

Roll-Over

As prescribed in the MLA, at least 7 days prior to the end of the stipulated period, the Demand / Call loans shall be reviewed to decide on whether it should be fully / partially Rolled-Over or Demanded / Called on end of expiry period. The Roll-Over is allowed for the borrowers before September 2024.

Roll-Over shall be offered only if

• Interest payment has satisfactory performance
• Collateral, if any, is sufficient
• Credit Risk pertaining to the Borrower is low
• Regular Performance Review has provided satisfactory result

On renewal, the Demand / Call loan shall be considered as a new demand / call loan, although it may continue under the same customer / loan account number. The Roll-Over shall require re-execution of fresh Loan Agreement and other documents, and mere addendum / amendment to the Loan Agreement shall not be undertaken.

Income Recognition, Asset Classification and Provisioning Demand / Call loans that are classified as NPA shall be accounted for on Receipt / Realization basis. Asset Classification & Provisioning shall be as per the requirements prescribed by Reserve Bank of India. However, the Company may adopt a more stringent Asset Classification & Provisioning mechanism based on expected risks. Further, the Company shall ensure that its Liquidity Risk Management system captures Non-Performing Assets as illiquid.

Exposure Limits

The Company / Management may set out overall Exposure Limits as well as sub-limits for Demand / Call Loan portfolio, based on parameters which may include:

1. Collateral Type / Unsecured
2. Credit Risk
3. Geography
4. Borrower Demographics
5. End-Use

Margin

Margin shall comprise of cash and/or collaterals, as per the Approval List / Group – 1 Securities after applying the haircut percentage as per the scrip category as per the Risk Policy of the company or as per the special margin approved for the client. The Approved List of Group 1 Securities will be available on the Company's website at all times and may be updated at the Company's discretion. The list can be modified by the Company, and any changes will be posted on the website. Typically, the list will be reviewed and updated on a quarterly basis.

Loan Agreement will override policy

This policy will not be overriding any of the terms and conditions given in the agreement including schedule of terms. In case of any inconsistency, the terms given in the agreement will prevail.

This policy will be reviewed on a periodical basis and revisions, if any, will be carried out after approval of the Board of Directors authorized by it as the case may be.

This policy should always be read in conjunction with RBI guidelines, directives, and instructions. The company will apply best industry practices so long as such practice does not conflict with or violate RBI guidelines. In case of conflicts, the RBI guidelines will have the overriding effect.

Excess refund to be credited to Client’s bank account:

1. In the scenario, the loan-to-value (hereinafter the "LTV") ratio exceeds the prescribed threshold limit, and if the Borrower cannot make good the shortfall by pledging additional securities or repaying part of the principal outstanding within the prescribed time limit as mentioned in the loan agreement; the Company reserves the right to invoke the pledge and liquidate the securities.
2. The company shall endeavor to refund the surplus arising from the sale of the pledged securities of the Lender within five working days of receipt of the fund as also prescribed in the agreement.
3. However, in certain scenarios like change in bank account details, demise of borrower, etc. wherein the company is unable to refund the surplus due to operational constraints, then the same shall be retained in designated non-interest-bearing bank account and the company shall not be liable for any interest obligations on such surplus. Such surplus shall be refunded to borrower or any other person as considered appropriate based on presentation of necessary documents and review of the same by the company.
4. The transferred amount in the designated bank Account can be retrieved by the Lender or their Nominee or any other person as considered appropriate by the company as the case may be following the procedure prescribed by the Company. The Company shall provide the necessary instructions and documentation required for the retrieval process.

Exception Handling

Any exceptions to this policy shall only be with the prior approval of the Board of Directors of the Company.

Adoption, Effective Date and Review

This policy has been adopted vide resolution of the Board of Directors of the Company dated 04th September 2024. This policy shall be applicable organization wide with effect from 04th September 2024. This policy shall be reviewed by the Board of Directors on an Annual basis.

Annexure I