Home Loan Maximum Tenure

Maximum Home Loan Tenure

“Owning a home is a keystone of wealth – both financial affluence and emotional security” as quoted by Susan Lynn Orman, the American author, and a motivational speaker. Home loans have been able to bridge the gap between the dreams of buying a home to making it come true. In India as the buying capacity of people is increasing so is the demand for home loan. Home loans also come with an added advantage of tax benefit. Banks have made all possible efforts to lure the customer but providing home loans for different purpose.

In India Banks offer five different types of home loan products, the products include:

  • Home Purchase Loans- If you are buying a new house or an apartment in a building then home purchase loan is your best bet. The loan amount issued in this is 80% of the total amount of the house.  
  • Home Construction Loans- If you are willing to construct a house on a plot, you can choose home construction loan.
  • Top-Up Loan on Home Loan- In case you have a home loan and you wish to purchase furniture or wish to fund your son’s or daughter’s education or marriage, your best bet is a top-up loan. 
  • Home Improvement Loans- In case you are looking for renovating your house, opt for this loan. You can fund all kind of renovation like plumbing, painting, tiling, waterproofing, furnishing, etc.
  • Land Purchase loan- Some people prefer buying land and then building the house as per their requirement. Banks provide Land purchase loan which is 80% or 85% of the cost of the property. However, this does not give you the tax benefit.
  • Loan Against Property– If you own a property and need fund for your business or expansion of business, or for any other requirement like marriage or education, you can opt for the loan keeping your property as a security.

Home Loan Tenure: Home loan comes with tenure or a period in which the loan amount has to be repaid.  There are many factors that affect the home loan tenure, usually banks insist for a longer home loan tenure as it is financially beneficial for them.  

home-loan-minimum-tenure_loanyantra-com

Factors that affect home loan:

  • Home Loan Amount– Analyse yourself how much amount you have to take as a home loan. If you have surplus funds, it is advisable to pay as a down payment to the builder and avail loan on the rest. You can choose this option if you have idle funds. If you have a higher loan amount and you can pay more EMI, it is advisable to opt for a lesser tenure.
  • Home Loan Interest Rate – When you go for a home loan, interest rate is the important factor in deciding the tenure of the  home loan. The interest rate keeps changing according to the RBI’s policies. If there is a rate cut by RBI, ensure from your borrower that the reduced interest rate is passed on to you. This will surely change your tenure of the home loan.
  • EMI – EMI and Tenure go hand in hand and are inversely related. It is important to decide which one you want to be higher. If you opt for a higher EMI, your tenure remains low. If you opt for a lower EMI, your tenure remains high. Calculate your option of EMI on home loan after you calculate your monthly unavoidable expenses, so that you don’t feel the pinch.
  • Age of the borrower – Tenure and age of the borrower are directly related. If you are 25 years old and you opted for a home loan, you have enough time to repay it. Also the banks allow you to opt to repay it by their respective maximum tenure limit. But if you are 45 years old, you can pay the EMI till you retire. So the tenure of you repaying the loan reduces and hence, banks also do not allow for opting their maximum tenure limit.

home-loan-maximum-tenure_loanyantra-com

According to your needs and priorities, you have to decide the tenure and the type of product.

Here is the list of banks and HFCs with their maximum home loan tenure:

Banks and HFCs associated with Loanyantra Maximum Home Loan Tenure
SBI 30 Years
ICICI 30 Years
HDFC 30 Years
DHFL 30 Years
Indiabulls 30 Years
Standard Charted Bank 5 years
Aditya Birla Housing Finance 25 Years
IDBI 30 Years
Axis 30 Years
CITI 25 Years
HSBC 25 Years

 

Banks and HFC’s not associated with Loanyantra Maximum Home Loan Tenure
L&T Housing finance 20 years
Shriram Housing Finance 20 years
Canara Bank 30 years
L&T Housing finance 20 years
Shriram Housing Finance 20 years
AU Financiers Home Loan 20 Years
Federal Bank 30 Years
Bajaj Finserve Up to 20-25 years
Allahabad Bank 30 Years
Bank Of Baroda 30 Years
Bank of India 30 Years
Bank of Maharashtra 30 Years
Canara Bank 30 Years

Our Role:

Loanyantra is a complete solution provider when it comes to home buying. We not only guide you in your home buying process but also help you understand which kind of home loan is better for you. In order to ensure seamless customer service, Loanyantra has collaborated with a number of banks to make your home purchase easy and comfortable. Get in touch with us today to know more on home loan and its allied services.

Home Loan Processing Fees

Processing fee- an important factor you need to consider before applying for home loan

Buying a home is a tedious and a strenuous process; since most of the home purchase is backed by a home loan, a lot of research goes in finding the right loan which matches your requirement and doesn’t burn a hole in your pocket. Despite all the active effort from your end, many of you miss the other costs we bear during the process of home loan application and sanctioning. These charges play an important role while deciding the bank or HFC from where you want to avail the home loan.  One of the most important charges that top the list of charges is the processing fee.

home-loan-processing-fees_loanyantra-com

What is processing fee?

Banks and HFCs charge a service fee for processing the home loan application. During the process of loan sanctioning, bank involves lawyers and property evaluators. There are others fees apart from processing fee that bank charges the likes documentation charges, stamp duty etc.  An important point to note here is that the processing fee is non-refundable even if the loan gets rejected. Another noteworthy point is that the processing fee varies from one bank to another.

Here is the list of banks and HFCs along with their processing fee:

Banks and HFCs associated with Loan Yantra Processing Fee
SBI 0% to 0.35% (max. ₹11,500)
ICICI 0.5% (min. ₹11,500) Onetime fee
HDFC 0% to 0.5% (max. ₹11,500)Onetime fee
DHFL 5,000 to ₹20,000One time fee
Indiabulls 0.5% (min. ₹8,625) Onetime fee
Standard Charted Bank 0.5% – 1.50% of the Loan Amount
Aditya Birla Housing Finance No fee
IDBI 1% of loan amount
Axis Min. ₹10,000 at 1% of loan amt.

CITI Up to . ₹ 5000/-
HSBC 1% of the loan amount or Rs.10000,whichever is higher
Banks and HFCs not associated with LoanYantra Processing Fee
PNBHFL 0.25% to 0.50%(min.₹11,500)Onetime fee
TATA HL ₹5,750 to ₹11,500One time fee
RELIANCE Home .5%
YES Bank Up to ₹11,500
Federal Bank ₹3,000 to ₹7,500 + S.T. Onetime fee
Indian Overseas Bank 0.53% (max. ₹13,350)Onetime fee
Bajaj Finserve 0.8% of the loan amount for salaried individuals
LIC Housing Finance ₹10000 to  ₹15000
Bank of Baroda ₹7,500 to ₹20,000
Bank of India Min. 1000 and Max. Rs. 20,000
Bank of Maharashtra 0.25% (max. ₹25,000)
Canara Bank ₹1,500 to ₹10,000

What you should know about processing fee?

Processing Fee is paid to the bank or any NBFC when you avail a home loan. Also it is important to note that if you want to get the new customer interest rate, you can pay the processing fees and convert your prevailing interest rate to the new borrower interest rate.

Whenever you balance transfer the loan amount from the existing lender to a new lender, you have to pay the processing fees. Though a little amount is to be paid, never ignore to change your interest rate as you end up not paying lakhs of rupees to the lenders.
Our Role:

Loanyantra is a one-stop solution for your entire housing loan requirement. Experience the hassle-free balance transfer of your loan. Relax as we have a free door-step service for collection of the documents and submission of the documents. Our dedicated SPOC or Single Point of Contact helps you understand the process of home loan and also takes care of all the procedure and paperwork. If you wish to know more about home loan and its allied services get in touch with us today.

Home Loan Minimum Tenure

Minimum Home Loan Tenure

“Owning a home is a keystone of wealth – both financial affluence and emotional security” as quoted by Susan Lynn Orman, the American author, and a motivational speaker. Home loans have been able to bridge the gap between the dreams of buying a home to making it come true. In India as the buying capacity of people is increasing so is the demand for home loan. Home loans also come with an added advantage of tax benefit. Banks have made all possible efforts to lure the customer but providing home loans for different purpose.

In India Banks offer five different types of home loan products, the products include:

  • Home Purchase Loans- If you are buying a new house or an apartment in a building then home purchase loan is your best bet. The loan amount issued in this is 80% of the total amount of the house.  
  • Home Construction Loans- If you are willing to construct a house on a plot, you can choose home construction loan.
  • Top-Up Loan on Home Loan- In case you have a home loan and you wish to purchase furniture or wish to fund your son’s or daughter’s education or marriage, your best bet is a top-up loan. 
  • Home Improvement Loans- In case you are looking for renovating your house, opt for this loan. You can fund all kind of renovation like plumbing, painting, tiling, waterproofing, furnishing, etc.
  • Land Purchase loan- Some people prefer buying land and then building the house as per their requirement. Banks provide Land purchase loan which is 80% or 85% of the cost of the property. However, this does not give you the tax benefit.
  • Loan Against Property– If you own a property and need fund for your business or expansion of business, or for any other requirement like marriage or education, you can opt for the loan keeping your property as a security.

Home Loan Tenure: Home loan comes with tenure or a period in which the loan amount has to be repaid.  There are many factors that affect the home loan tenure, usually banks insist for a longer home loan tenure as it is financially beneficial for them.  

home-loan-minimum-tenure_loanyantra-com

Factors that affect home loan:

  • Home Loan Amount
  • Home Loan Interest Rate
  • EMI
  • Age of the borrower

According to the borrower’s need and considering the required factors, the borrower then decides the tenure and the type of product.

Here is a list of banks and HFCs with the minimum loan tenure offered by them :

Banks and HFCs associated with Loanyantra Minimum Loan Tenure
SBI 1 Year
ICICI 3 years
HDFC 1 year
DHFL 1 year
Indiabulls 1 year
Standard Charted Bank 5 years
Aditya Birla Housing Finance 5 years
IDBI 1 year
Axis 1 year
CITI 1 year
HSBC 1 Year

 

Our Role:

Loanyantra is a complete solution provider when it comes to home buying. We not only guide you in your home buying process but also help you understand which kind of home loan is better for you. In order to ensure seamless customer service, Loanyantra has collaborated with a number of banks to make your home purchase easy and comfortable. Get in touch with us today to know more on home loan and its allied services.

What is Re-financing?

Refinancing

If a borrower wants to have a change of the rules/terms or interest rate or payment period of the existing lender, he opts for a new lender. This is called as refinance. In a refinanced loan, the old loan is paid off with the new loan, and the old terms are replaced with new terms.

The concept of Refinance:

Many times when the home loan borrowers get overburdened with the interest rates of the bank, they decide to move to another bank offering better interest rates.

For example last year, RBI had slashed down the rate of interest for home loan borrowers. Banks like HDFC and SBI had slashed the interest rates by .15% in their lending rate but many banks were not willing to offer this leverage to their existing customers; but, the new home loan borrowers can avail this sliced interest rates.

Under such circumstances, the borrower might prefer for a refinance, to enjoy the benefits of the new customer.

The following information will be checked when you apply for refinance:

  • Your credit score and payment history.
  • Your income and employment history.
  • Your assets (stock, retirements and savings accounts).
  • An appraisal to determine the current value of your home.

refinance_loanyantra.com

Types of Refinance

Considering the Indian market scenario, here is the classification of refinancing loans:

  • Rate and Term:  This is the most common type of refinance. Here you can replace the existing loan with a new one with new interest rate, new timeline (optional) and new terms.
  • Cash Out: In case you are willing to mortgage a large amount, then cash out is a good option. With cash-out refinancing, you refinance your mortgage for more than you currently owe, then pocket the difference. Be aware where and how you spend the extra amount.
  • Cash In:  A cash-in refinance is the opposite of a cash-out refinance. When you execute a cash-in refinance, you bring money and pay the new lender and lower the loan amount, either to qualify for the loan or to retire fast from the loan.
  • Short Refinance: . Here your existing bank may agree to pay off(refinance) your existing loan by replacing it with a new one, making it more cost effective for the borrower. But this might hurt your credit score.
  • No-Closing Cost: Here you can get a new loan after paying upfront fees of considerable amount. But make sure that you only pick up this option when your existing interest rate is lower than the present interest rate by at least 1.5%

Factors you should consider before refinancing your home loan :

  • Interest rates – Never ignore this factor while you plan for refinancing your existing home loan. It is advisable that you should search in a number of banks to make a comparative analysis of the interest rates so that you can find out which bank offers the best rates.
  • Processing charge: Getting your loan refinanced from another bank may require the bank to process your application which makes you liable to pay a processing fee which could be between .5% to 1% (depending on the bank you are opting) and hence, we suggest that you should always compare the savings you make while opting another bank. If the saving amount is significant go ahead with refinancing.
  • Tenure of the loan – Tenure and EMI are inversely related to each other, if you want a lesser tenure go for higher EMI and vice versa. Few banks do not agree on reducing the loan tenure, under such situations, no wonder you might opt for a refinance, provided you also have a lesser interest rate when compared to your existing lender’s.
  • Be calculative while planning to refinance. It’s not mandatory that refinance will always reap benefits to you and hence, you need to meticulously calculate the amount you will save while applying for refinancing. Different banks have different exit policies and penalties; some might go up to 4% of loan amount, thus, calculate the amount and then go ahead with refinancing.

Advantages of Refinancing / Reasons for Refinancing :

  • It lowers the monthly payment as you opt for a lower interest rate.
  • It makes it easy for you to plan and pay off your loan if you refinance your new home loan from floating to fixed interest rate, as you have a planned EMI.
  • Consolidation of debts for, there will be a reduced EMI.
  • Change of maturity of the loan. Refinance is the best only if you opt for a lower tenure at a lower interest rate.

Ask yourself before you go for Refinancing : 

Before you contact a refinance lender, make sure refinancing makes sense for you. Ask yourself these questions:

  • Is there a prepayment penalty on my current mortgage?
    Though the RBI had removed the pre-payment charges, the banks and NBFCs still ask for a penalty if the loan amount crosses certain limit. So, find out if you will be charged a “prepayment penalty.” The amount varies, but it can add up to several months’ worth of interest payments. Ask your lender.
  • What are the costs of the new mortgage?
    Lenders almost always charge fees for taking out a new loan. These can add up depending on the size of the loan. The charges could include application fees, insurance fees, plus title search, insurance and legal costs. However, many of these fees are negotiable and are different from lender to lender. Make sure to shop around and compare all associated costs and fees of your refinance.
  • Will my tax savings be reduced?
    If you claim mortgage interest on your tax return, refinancing to a lower rate will mean that you’ll have less mortgage interest to deduct. That means you might have to check with your tax adviser to see if your overall savings will be increased if you refinance.

Our role: Loanyantra is a complete solution guide to the home loans existing in India. We are the first real-time loan monitoring system that work dynamically as the market changes. Our continuous monitoring and market analysis always keep you posted on the latest development and changes in the home loan market and your loan status. Apart from loan management, we work on refinancing and balance transfer as well. Our sole objective is to make sure that all the customers of Loanyantra are able to close their loan easier and faster.  

Know more on how to add a co-borrower while you refinance your home.

How to add a co-borrower when you refinance a home?

Know more about cost of switching home loan from one lender to another

Cost of switching home loans to new lenders?

 

Banks and Home loans interest rate

With the change of the interest rate calculation methods, a constant change in interest rate is expected, though not every month but every quarter, in a minimum.

Home loan is a long term loan and customers,usually, prefer floating rates. Rates keep changing and expecting a lower interest rate for the whole tenure of 20 year is impossible.

So, what is the right time to take a Home loan ?

  • The Property you intend to buy is good and cannot be missed or it is expected that the price of property will rise.
  • If you can fix the EMI in your monthly budgets.

Reports show that Home Loan Market in India is Rs.9,70,000 crore in size. Market is growing at 15.6% per annum over the last 10 years. But India’s GDP is only 8% whereas developed countries’ is at 60%. But if we look at Indian Government’s initiative or Plan of housing for all, by 2020 India needs 11 crore homes. In last 5 years, property prices have home loan interest rates_loanyantraincreased by more than 72%, but the median income has not. It makes the houses unaffordable for several borrowers. Though the real estate market is stable right now, we should take the advantage of the situation and the interest rates too.

 

Join with us for even lesser interest rate and pay less on your home loan.

Know the interest rates of several banks and how much loan each bank provides on your property.

Banks Loan to Property Value Interest Rates
State Bank of India SBI 75% -90% 9.40% – 9.45%
HDFC Ltd. 75% -80% 9.50% – 9.55%
LIC Housing 75% -80% 9.60%
AXIS Bank Home Loan 75% – 85% 9.50% – 9.65%
ICICI Bank Home Loan Upto 85% 9.40% – 9.80%
Fedbank Home Loan Upto 85% 9.68% – 10.08%
PNB Home Loan 75% – 80% 9.60%
PNB Housing Finance 75% – 80% 9.75% – 9.95%
IDBI Home Loan 75% – 90% 9.75%
DHFL Home Loan 80% – 85% 9.55%(upto 25lacs),then 9.65%
Bajaj Finserv Home Loan 75% – 80% 9.50%
Indiabulls Home Loan 75% – 80% 9.90% – 10%
Allahabad Bank Home Loan 75% – 90% 9.70% – 9.95%
Bank of India Home Loan 75% – 85% 9.70% – 9.95%
Union Bank Home Loan 65% – 80% 9.65% – 10.40%
United Bank Home Loan 75% – 80% 9.75%
UCO Bank Home Loan 75% – 80% 9.70%
Bank of Baroda Home Loan 75% – 90% 9.65%
Kotak Home Loan up to 80% 10.25%
Vijaya Home Loan Upto 80% 9.65%
Standard Chatered Home Loan Upto 80% 9.51%
India Bank Home Loan 80% – 90% 9.65%
L&T Home Loan 80% – 90% 9.90% – 10.75%

For more information logon to www.loanyantra.com.

Revised Interest rates by banks as per MCLR.

Earlier were the days when banks used to play around with the interest rates. With the new introduction of interest rate calculation by RBI, since April 1, 2016, the competition amongst banks is running on a high speed.

Banks have to review their interest rates every month and publish on a pre-announced dates. Also, full-fledged review of the customer’s  risk profile is high in priority before lending the loan amount and in deciding the spread and the final interest rate.

So, how is it advantageous to customers?

Solution to this question lies within the following question.

Did banks ever observe the change in base rate and implement in their interest rate?

To make it practical…imagine you borrowed loan amount at 10%  interest rate. Out of which, say, 9.5% is base rate and 0.5% is spread.  If RBI changes the base rate to 9%, your interest rate is supposed to be 9.5% (9% +0.5%). But what happens in reality, the banks with unknown reasons, increase the spread. Instead of 0.5%, the banks can take a chance to increase the spread to 1%.

Now, with MCLR in existence, banks should consider the customers risk profile in detail, to decide on spread. Banks can’t easily get arbitrary with spread changes.

mclr interest rates_loanyantra

What will be the impact of 0.25% lesser interest rate on home loans?

The longer the remaining tenure, greater the impact. The saving can be in hundreds per month. But, when you calculate you end up saving atleast a month’s EMI.

A cut in small savings rate is likely to bring down bank deposit rates and ultimately lead to a drop in lending rates as well.

The other aspect,

For a borrower in April 1 get loans at the prevailing MCLR (9.3%), but a month later a new borrower might get a loan at a lower MCLR if the cost of funds drops. For the April borrower, it will take three more quarters for his loan to get reset. In other words, there could be 12 sets of one-year MCLR if cost of funds change every month.

Corporate customers are also likely to look at shorter term loans to take advantage of falling rates. This will mean that banks which borrow for longer terms but have give term loans will face an asset-liability mismatch – though the only issue there is that bank earnings become volatile, they don’t usually face a crisis because of that.

Observe the revised interest rates by various banks..

Bank / NBFC Current Base Rate, PLR New MCLR April 2016 Latest Update
Allahabad Bank 9.70% 9.30% – 9.60% 01st Apr 16
Andhra Bank 9.75% 29th Sep 15
Axis Bank 9.50% 9.10% – 9.65% 01st Apr 16
Bajaj Finserv (PLR) 20.16% 01st May 14
Bank of Baroda 9.65% 9.00% – 9.35% 01st Apr 16
Bank of India 9.70% 9.15% – 9.40% 01st Apr 16
Bank of Maharashtra 9.70% 9.10% – 9.65% 01st Apr 16
BNP 9.50% 23rd Sep 13
Canara Bank 9.65% 9.00% – 9.45% 01st Apr 16
Catholic Syrian Bank 10.50% 01st Dec 11
Central Bank of India 9.70% 08th Oct 15
Citi Bank 9.25% 12th Oct 15
City Union Bank 10.50% 01st Nov 15
Corporation Bank 9.65% 08th Oct 15
DBS Bank 9.10% 01st Feb 16
Dena Bank 9.70% 9.30% – 9.60% 01st Apr 16
Deutsche Bank 9.20% 19th Oct 15
Development Credit Bank 10.70% 14th Dec 14
Dhan Laxmi Bank 11.40% 03rd Nov 15
DHFL PLR 18.30% 08th Oct 15
Edelweiss PLR 17.50% 30th Nov -1
Federal Bank 9.63% 9.14% – 9.60% 01st Apr 16
GIC Housing Finance PLR 15.00% 30th Nov -1
HDFC PLR 16.30% 05th Oct 15
HDFC Bank 9.30% 8.95% – 9.35% 01st Apr 16
HSBC Bank 9.10% 09th Nov 15
ICICI Bank 9.35% 9.40% – 9.70% 01st Apr 16
IDBI Bank 9.75% 30th Sep 15
IIFL PLR 17.50% 01st Apr 14
Indiabulls PLR 17.05% 08th Oct 15
Indian Bank 9.65% 9.20% – 9.70% 01st Apr 16
Indian Overseas Bank 9.90% 9.50% – 9.90% 01st Apr 16
IndusInd Bank 10.60% 19th Oct 15
Jammu and Kashmir Bank 9.50% 05th Oct 15
Karnataka Bank 10.25% 8.95% – 9.20% 01st Apr 16
Karur Vysya Bank 10.40% 05th Oct 15
Kotak Bank 9.50% 8.90% – 9.65% 01st Apr 16
Lakshmi Vilas Bank 10.55% 08th Feb 16
LIC Housing Finance PLR 14.20% 10th Oct 15
Nainital Bank 9.75% 21st Oct 15
OBC 9.70% 30th Sep 15
PNB 9.60% 9.15% – 9.55% 01st Apr 16
PNB Housing Finance 14.35% 27th Apr 15
Punjab and Sindh Bank 9.75% 05th Oct 15
Ratnakar Bank 10.65% 16th Oct 15
Reliance Capital PLR 18.00% 01st Nov 15
SBBJ 9.70% 05th Oct 15
SBI 9.30% 8.95% – 9.35% 01st Apr 16
South Indian Bank 10.00% 9.50% – 10.00% 01st Apr 16
Standard Chatered Bank 9.50% 8.45% – 9.65% 01st Apr 16
State Bank of Hyderabad 9.75% 08th Oct 15
State Bank of Mysore 9.65% 07th Oct 15
State Bank of Patiala 9.65% 05th Oct 15
State Bank of Travancore 9.95% 05th Oct 15
Syndicate Bank 9.70% 9.65% – 9.65% 01st Apr 16
Tamilnad Mercantile Bank 10.40% 15th Oct 15
UCO Bank 9.70% 05th Oct 15
Union Bank of India 9.65% 9.25% – 9.45% 01st Apr 16
United Bank of India 9.65% 12th Oct 15
Vijaya Bank 9.65% 08th Oct 15
Yes Bank 10.25% 9.00% – 9.60% 01st Apr 16

To know more about MCLR, its calculation and the difference between base rate and MCLR, refer the following link.

http://loanyantra.com/blog/wp-admin/post.php?post=246&action=edit

 

MCLR and Base Rate.

What is going viral this April 1st?

Don’t think it to be a fool game. It’s real. SBI, the pioneer had taken initiation to announce the news of execution.

There is a press release on september 2015 by RBI w.r.t the banks interest rate calculation to improve transparency in the methodology followed by banks for determining interest rates on advances.

Till today (March 31st, 2016), the calculation is based on base rate system which includes the following factors

A) Cost of Deposits

B) Negative carry on CRR and SLR

C) Unallocatable  overhead costs

D) Average Return on Networth.

The highest weightage is given to Cost of Deposits.

However, it was not mandatory that all the banks should have the same base rate. There were different methods that were followed.

The new concept is that banks HAVE to lend using rates linked to their funding costs. A bank raises money through deposits, bonds and wholesale borrowing. It has costs like salaries, rents, electricity costs etc. It also has to make a certain amount of profit at the very least. So the RBI has put all of this into a formula that banks can use to quantitatively determine how much their lending rate should be.

The new method MCLR(Marginal Cost of funds based Lending Rate) mentions a particular method to be followed. Following are the main components of MCLR.

A) Marginal cost of funds

B) Negative carry on account of CRR

C) Operating costs

D)Tenor premium.

Here, the highest weightage is given to the marginal costs.

Know the meaning of the above terms to understand why this method is powerful and transparent when compared to earlier methods, viz., base rate system and BPLR.

Negative carry on account of CRR is the cost that the banks have to incur while keeping reserves with the RBI. The RBI is not giving an interest for CRR held by the banks. The cost of such funds kept idle can bbase-rate MCLR_loanyantrae charged from loans given to the people.

Operating cost is the operating expenses incurred by the banks

Tenor premium denotes the higher interest that can be charged from long term loans.(means 1 year rate is higher than 6 month rate, etc)

Marginal Cost: The marginal cost is the novel eleme
nt of the MCLR. The marginal cost of funds will comprise of Marginal cost of borrowings and return on networth.  According to the RBI, the Marginal Cost should be charged on the basis of following factors:

  1. Interest rate given for various types of deposits-  savings, current, term deposit, foreign currency deposit
  2. Borrowings – Short term interest rate or the Repo rate etc., Long term rupee borrowing rate
  3. Return on networth – in accordance with capital adequacy norms.

The marginal cost of borrowings shall have a weightage of 92% of Marginal Cost of Funds while return on networth will have the balance weightage of 8%.

MCLR Vs Base Rate. Base Rarte & MCLR components in calculating Lending rates
MCLR Vs Base Rate.Base Rarte & MCLR components in calculating Lending rates

According to the RBI guideline, “Banks will review and publish their MCLR of different maturities every month on a pre-announced date.” Such a monthly revision will compel the banks to consider the change in repo rate change if any made by the RBI during the month.  

 

Inspite of severe emphasis laid by the RBI governor, Raghuram Rajan, to the banks to pass on interest rate cuts, less than half had been passed on to consumers this year. This made the necessity to invent this method.

Now with MCLR, banks are obliged to readjust interest rate monthly. This means that such quick revision will encourage them to consider the repo rate changes.

The final lending rate will be MCLR + Spread. (Earlier, Base Rate + Spread.)

While these guidelines will benefit new customers, existing customers will also have an option to shift to the new regime with some conditions.

SBI’S Announcement.

At SBI, the MCLR for loans upto one year maturity will be lower than its current base rate of 9.30% while those on two year and above maturity will be marginally above its base rate.

According to the statement on the bank’s website, the MCLR for overnight loans will be 8.95%, for one-month at 9.05% and for three-month at 9.10%.

The MCLR on 6-month loans will be 9.15% and for one year loans the rate would be 9.2%, the bank said.

Further the bank’s MCLR for two year loans would be at 9.3%. Loans with three year maturity would carry an MCLR of 9.35%, the bank said.

For more information on MCLR, its benefits. Know in detail

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