Home loans have only got cheaper in the current scenario with a series of cuts in the repo rate courtesy the Reserve Bank of India (RBI). In fact, several Indian banks have reduced their home loan interest rates in recent times while some are shifting towards offering repo rate linked home loans to new borrowers as well. Banks have to reset interest rates on home loans once in every 3 months as per RBI guidelines in case of home loans which are tied to external benchmarks like the repo rate. The RBI had previously instructed all SCBs (scheduled commercial banks) in the country along with small finance banks and local area banks to tie rates of interest on retail loans (inclusive of home loans) to an external benchmark.
This was made effective from the 1st of October, 2019. Most banks in the country have chosen the repo rate as their external benchmark for linking all floating rate based loans. Rates of interest tied to the repo rate are known as RLLR or repo rate linked lending rate. This also includes the repo rate along with the margin/spread of the bank in question. Banks can charge a margin and spread along with the risk premium over and above this external benchmark rate.
The repo rate is presently at 5.15% and there is widespread speculation about a further rate cut by the RBI in the near future. The spread charged by any specific bank will be the same for all customers although the risk premium will vary from one borrower to another. This is usually more in case of self-employed customers as compared to salaried professionals.
Interest rates on home loans at India’s top banks
Here are the latest rates of interest on home loans from some of the leading banks in the country:
|Bank||RLLR||Minimum & Maximum Rates of Interest|
|Bank of India||8||8.10% (min), 8.40% (max)|
|Punjab National Bank||8||7.95% (min), 8.45% (max)|
|Andhra Bank||8.10||8.15% (min), 9.30% (max)|
|Bank of Baroda||8.10||8.10% (min), 9.10% (max)|
|United Bank of India||N/A on official site||8.15% (min), 8.30% (max)|
|Union Bank of India||8||8.20% (min), 9.35% (max)|
|SBI Term Loan||N/A on official website||8.20% (min), 8.55% (max)|
|IDBI Bank||8.25||8.25% (min), 8.60% (max)|
|Central Bank of India||N/A on official website||8.25% (min), 8.55% (max)|
|Syndicate Bank||N/A on official website||8.25% (min), 8.45% (max)|
Some key factors worth keeping in mind here are the following:
- SBI has an extra premium (0.10%) for borrowers in the 04-06 grade of risks.
- 25% of the loan is charged as the processing fee at BOI (Bank of India). The minimum amount is Rs. 1,500 and the maximum amount is Rs. 20,000.
- Bank of Baroda charges risk premium based on the risk rating.
- Andhra Bank has 0.50% of the loan amount marked as processing fees and the maximum amount can be Rs. 10,000 and taxes that are applicable.
The linking of retail loans to external benchmarks- A landmark decision by the RBI
The Reserve Bank of India (RBI) made a landmark move to link rates of interest on home loans and all other retail loans to an external benchmark. This decision was implemented in a bid to ensure higher transparency in terms of loan pricing and swifter transmission of changes in policy rates for customers. In the MCLR system, banks did not pass on benefits of RBI’s repo rate cuts to customers swiftly. However, whenever there was an increase in the repo rate, banks were swift in increasing rates of interest on loans likewise.
Banks can choose from the repo rate of the RBI, 6-month Treasury Bill yield of the Government of India, 3-month Treasury Bill yield of the Government of India or any other benchmark interest rate in the market published by FBIL. Banks have to reset their rates of interest on home loans once every 3 months in the new regime. This means that any changes in the external benchmark rate will be compulsorily passed to borrowers within 3 months of any such change. Additionally, the risk grade of the customer will now impact his/her loan interest rate. Banks possess their internal teams for risk assessment who grade categories of risks for different individuals. Some banks depend on credit scores and credit reports from bureaus for working out the risk grade. As a result, you should have a good credit score while applying for a home loan in order to get a lower rate of interest on the same. In case the assessment of credit risks changes comprehensively during the loan duration, your bank can get the risk premium revised and you will be charged accordingly.