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Top 5 banks' home loan interest rates

The Reserve Bank of India has directed banks to link their lending interest rate to an external benchmark rate such as repo rate. The aim is to provide greater transparency and faster transmission of changes in the policy rates.

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Updated: Jan 16, 2020, 04.38 PM IST
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RBI, in its circular, has asked banks to reset the interest rates linked to an external benchmark at least once every three months.

With effect from October 1, 2019, as per mandate by the Reserve Bank India (RBI), banks have to link interest rates on all retail loans, including home loans, to an external benchmark rate. Scheduled commercial banks (except regional rural banks), local area banks and small finance banks have to follow this mandate.

As per the directive, banks can link their retail lending interest rate to any one of the four external benchmarks mentioned in the circular.

RBI has asked banks to link their lending interest rates to any of the four external benchmarks:
  • RBI's repo rate
  • Government of India 3-months Treasury bill yield published by Financial Benchmarks India Pvt. Ltd. (FBIL)
  • Government of India 6-months Treasury bill yield published by FBIL
  • Any other benchmark market interest rate published by FBIL

Most banks have opted to link the interest rate on loans to RBI's repo rate. A bank's interest rate linked to the repo rate is called Repo Rate Linked Lending Rate (RLLR). The bank arrives at its RLLR by adding a spread or margin to the repo rate.

RLLR = Repo rate + Margin or spread

Currently, repo rate is at 5.15 per cent.

Apart from the margin, banks' can also charge risk premium from the borrowers on the home loan taken by them. Though spread will remain the same for all home loan borrowers of a particular bank, the risk premium will vary. Usually, it is seen that banks charge higher interest rates on loans to self-employed customers compared to salaried borrowers.

Top 5 banks offering lowest interest rate on home loans to salaried individuals
BANK RLLR Minimum Interest rate** Maximum Interest rate
Punjab National Bank 7.80 7.90 9.35
SBI Term Loan 7.80 7.90 8.30
Syndicate Bank
7.90
7.90
8.50
United Bank of India
7.70 8.00 8.15
Central Bank of India
8.00 8.00 8.30
*Central Bank of India charges 0.50 per cent of loan amount as processing fees subject to maximum Rs 20,000
*Syndicate Bank risk rating based on CIBIL Score
*SBI charges premium of 0.10% from customers under risk grade of 04 to 06.
** Sorted on minimum interest rate charged by the bank after adding risk premium


Top 5 banks offering lowest interest rate on home loans to self-employed
BANK RLLR Minimum Interest rate** Maximum Interest rate
Punjab National Bank 7.80 7.90 9.35
Syndicate Bank 7.90 7.95 8.60
United Bank of India 7.70 8.00 8.15
Central Bank of India 8.00 8.00 8.30
Canara Bank 8.05 8.05 10.05
*Central Bank of India charges 0.50 per cent of loan amount as processing fees subject to maximum Rs 20,000
*Syndicate Bank risk rating based on CIBIL Score
*Canara Bank charges risk premium as per CIC risk grade.

** Sorted on minimum interest rate charged by the bank after adding risk premium

All data sourced from Economic Times Intelligence Group (ETIG)
Data as on January 16, 2020


Factors that will impact changes in your home loan EMI

There are two factors that can impact the amount of equated monthly instalment (EMI): Changes in the external benchmark rate and risk assessment done by your bank.

RBI, in its circular, has asked banks to reset the interest rates linked to an external benchmark at least once every three months. Therefore, in case of any change in the external benchmark, for instance, repo rate in the above table, then banks will also have to change the interest rate they are charging you for the loan taken.

Also Read: How borrowers EMI will be reset if loan is linked to external benchmark

Another factor that will impact your EMIs is the risk group you come under.
Some banks have internal risk assessment teams that categorises borrower's risk group. On the other hand, some banks rely on the credit score given by the credit bureaus to assess the risk grade of the borrower.

For instance, for a home loan taken under SBI Max Gain, the bank can charge a premium of 10 bps (100 bps = 1 per cent) from a customer falling in the risk grade of 04 to 06. Thus, it is important to have good credit score while taking a home loan so that your bank charges a lower risk premium from you.

Also Read: 5 lesser known facts that lower your credit score

Remember as per the RBI circular, if your credit risk undergoes any major change during the tenure of the loan, then the bank can revise the risk premium charged from you.

Why RBI took this decision
The central bank has directed banks to link the interest rate on retail and MSME loans to an external benchmark rate in order to provide greater transparency and faster transmission of changes in the key policy rates. Under the previous marginal cost-based lending rate (MCLR) regime, home loan borrowers often complained about banks quickly raising interest rates when RBI raised key policy rates but rates were not cut in the same rigour when RBI reduced the repo rate.

For any queries or changes, please write to us on etigdb@timesgroup.com or call us at 022 - 66353963

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