Citi India has launched a dedicated home loan product which is highly unique in nature. This home loan is tied to 3-month treasury bills. This is the first such home loan offering available in India. The interest rates on home loans will be varying from one customer to another based on the credit profile and specific requirements. However, as per reports, the loan spread could be around 200 basis points over and above the treasury bill rate for three months.
No bank in India has ever introduced a home loan offering or other financial product linked to the treasury bills for 3 months. Home loan pricing will be determined through this independent and external benchmark. Also, this unique step by Citi India will help it consolidate in the midst of an interest rate scenario where rates are slowly hardening. Customer home loans will be priced on the basis of the treasury bill rate for 3 months which is released on the 12th of each month by FBI (Financial Benchmarks India) Private Limited. This is an entity which is owned jointly by the India Banks’ Association, Fixed Income Money Market and Derivatives Association of India and the Foreign Exchange Dealers’ Association of India. The rates of interest will fluctuate depending on the credit profiles of applicants and other loan needs.
On the 5th of March, 2018, the three month treasury bill rate was 6.27%. Citi India is looking to test the market in terms of pricing for loan products with the use of an external benchmark in the country. Citi has already employed this strategy across other global markets such as Taiwan, Singapore and the United States. The RBI (Reserve Bank of India) has been calling for linkage of home loan rates to an external benchmark in order to ensure better transmission of the monetary policy. A committee that was formed by the apex bank in 2017 had proposed the linking of lending rates to a suitable market benchmark. This would ensure higher transparency in fixing of interest rates by lenders.
The panel had proposed either certificates of deposit rates, treasury bills and the policy repo rate of the RBI. Citi India feels that the treasury bill rates are quite indicative of the policy rates of the RBI and overall market liquidity. The spread will remain absolutely constant for home loan customers throughout the home loan tenor as per reports. The rate review process will take place every month at Citi India. The bank currently has Rs. 9, 000 crore on the home loan book as of the 31st of December, 2017 and the home loans which are linked to the MCLR are reviewed after every three months. The net advance figures are Rs. 57, 000 crore for Citi India and the average ticket size for home loans at the bank is approximately Rs. 1 crore as per reports.