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Time of India
3 hours ago
- Business
- Time of India
How homebuyers can protect themselves from being scammed by builder-bank nexus when buying under-construction houses
Devil in the details Academy Empower your mind, elevate your skills Games builders play A cosy club Builder stops paying EMIs. Bank holds buyer liable (since the loan is in buyer's name). Buyer must start paying EMI, even if... — The house is not delivered. — The builder is insolvent or absconding. If staying on rent, buyer pays EMI + rent. lCredit score gets damaged due to missed payments. What should homebuyers do? Ensure the project is registered with RERA and check its status online. Avoid schemes that lack escrow accounts. Demand clear documentation of payment schedules and possession timelines. Seek independent legal and financial advice before committing. Prefer projects backed by reputed banks that conduct thorough due diligence. It was an offer homebuyers could not resist. Buy a pricey apartment for a small upfront payment of 5-10%. Borrow the rest from a lender with an added sweetener: your EMI payments are deferred until you get possession of the flat. The developer agrees to bear the interest burden until the buyer receives the keys to the house. What could go wrong? A lot, as it turns widespread defaults by cashstrapped developers on their commitments, banks have been demanding repayment from purchasers, despite homes remaining undelivered. Following petitions from thousands of aggrieved homebuyers, the Supreme Court this year directed a Central Bureau of Investigation (CBI) inquiry into a housing scam by builders and banks. The CBI in July filed multiple cases against various Delhi/NCR-based builders, as well as banks, for duping homebuyers. This may be just the tip of the iceberg. The rot runs deeper. Real estate developers have, over the years, employed a wide array of tactics to attract buyers. Beyond freebies, discounts and creative sales pitches, builders have also offered convenient financing options promising 'no EMI till possession' subvention schemes and deferred payment plans linked to construction progress. Akhil Rathi, Head, Financial Advisory at 1 Finance, says, 'Subvention and deferred payment schemes aim to reduce the initial financial burden for homebuyers, especially those currently paying rent, by offering lower upfront costs and delayed EMIs .'However, there is often a devil residing within the fine print. In a subvention scheme , a tri-party agreement is executed among the homebuyer, the builder and the lender. The builder agrees to pay the pre-EMIs till possession. Even so, the actual borrower remains the homebuyer. So if the builder defaults on the interest payments, it is the homebuyer who is exposed. If he can't repay the loan, the buyer's credit rating the offer clearly specifies a timeline for this arrangement. Some developers promise to cover the interest cost only for the initial 18 to 24 months. 'Subvention plans are always timed. The builder offers to pay interest only for a specified number of years,' indicates Adhil Shetty, CEO, Beyond this period, the buyer is obligated to make EMI payments even if the project is not completed. Rathi adds, 'Builders also charge a much higher price for houses if bought through a subvention scheme. This hidden cost defeats its purpose.'As many buyers have discovered, delays in under-construction houses are a common occurrence in India. Thousands of homebuyers across Delhi/NCR, Mumbai and Pune have fallen victims to this. Data analytics firm PropEquity found in 2024 that one in five under-construction houses, totalling over 5 lakh units, remained undelivered as 1,981 projects across 44 cities were stalled in the preceding eight the remaining four under-construction houses were delivered after a substantial delay of 3-4 years. 'Construction delays are a standard feature of Indian realty for several reasons. This means that the subvention plan leaves borrowers high and dry in case of a serious project delay,' remarks be sure, the RBI had banned banks from entering into such arrangements. It had also barred lenders from making upfront disbursements to builders in underconstruction projects. Loans must be disbursed in tranches linked to construction progress. However, several NBFCs and fintech platforms continue to tie up with builders to offer variants of such construction-linked plan (CLP), a staple offering among builders, has proven to be a mirage. Under this arrangement, the buyer pays in tranches, linked to construction milestones. The builder receives payment only when the work is completed, supposedly reducing the risk for buyers. Surely, it is in the builder's interest to execute the project on time?Not quite. Experts point to a critical flaw in construction-linked plans. These are often not aligned with the builder's cash flow. 'The payment plan is designed in a manner that you would have to pay 90% of the apartment price upon 'laying of the top floor of the building'. However, that is not how the project expenses are allocated. By the time the structure is complete, the builder usually has spent approximately 40-50% of the project cost. The rest 60% of the money is needed later,' observed Anurag Singh, Founder, Ansid Capital, in a recent post on X. Once the builder has received a majority of the project cost (via CLP), he slows down construction deliberately. He has already pocketed a sizable chunk of profits, but his costs are yet to materialise or flow out. He stops construction rather than pay for the remaining work. That is why buyers often find projects getting stalled in later stages, not initially. In the meantime, the builder diverts attention to new launches. Money received under CLP for Project A is diverted to buy land or finance construction in Project B or C. If Project A is delayed or abandoned, the builder has still made his in five under-construction houses were undelivered across major cities and towns in are notorious for gaming this arrangement. A builder claims a milestone (say, 10th or 15th slab) is complete even when actual work is pending. If a lender is involved, they may furnish forged completion certificates to get the lender to release the next tranche. This results in front-loaded payments even when the construction activity lenders carry out due diligence while choosing builders? Surely banks would not want any erosion in the value of their collateral. On the contrary, lenders have been lax in this regard. Many banks don't lend to builders (other than grade A) directly, given the risk in the real estate business. Instead, they offer home loans to individual buyers, which indirectly fund the builder. 'Essentially, the consumer is financing the builder in the name of 'construction-linked plan',' observes Singh. 'So a developer, to whom no bank lends money, can actually get easy finance from the buyers at 0% interest, while the borrowers pay the EMIs with interest,' he system has conveniently kept the builders well fed. In many cases, builders and lenders have pre-arranged cosy tieups. Banks sanction loans for new projects without batting an eyelid, even if these are missing clearances from local authorities. Some lenders may skip physical inspection of construction progress entirely, relying on the builder's documents. This lack of hygiene checks is because banks have no real skin in the game, say experts. How so? If the builder falters and the house (collateral) value shrinks, the bank can recover its value through auction and yet hold the homeowner liable for the outstanding builders and lenders have led homebuyers into a storm. 'Builders have often exploited subvention schemes to attract buyers without ensuring timely delivery. In many cases, they were used to mask delays or financial instability. Banks, too, have played a role by approving loans without adequate scrutiny of the project's viability, especially during periods of high market activity,' remarks Ravi Shankar Singh, Managing Director, Residential Transaction Services, Colliers India. 'Builders used these schemes to collect funds early while construction lagged. Banks, aiming to grow home loan portfolios, at times overlooked due diligence,' suggests a tri-party agreement project gets delayed or builder guardrails are now in place through the Real Estate Regulation and Development Act (RERA), but these lack sufficient enforcement mechanisms. This encourages builders to play the devil with impunity. 'A law is only as strong as its enforcement. RERA orders have no enforcement power. Even if you win interest penalty for delayed completion, you can take that victory certificate where you want to. The builder is not going to pay anything,' Singh laments in his post. 'We created a system that was designed to finance the extremely low-credit builder and rob the consumer of his lifetime earnings with no recourse to justice,' he unsuspecting homebuyers are now paying a hefty price for pursuing their housing aspirations. The dream abode has turned out to be a millstone around the neck rather than a means for achieving financial freedom. For those looking to buy, vigilance remains the only Pharande, Managing Director of Pharande Spaces, insists, 'Buying a home should be driven by at least as much awareness as sentiment. Homebuyers must always approach a real estate deal in the spirit of caveat emptor—buyer beware.'Verify the builder's track record and financial stability. Ensure the project is registered with RERA and check its status online. Seek independent legal and financial advice before committing. Shetty avers, 'Scrutinise all the documents, approvals, sanctions, etc. It does not matter whether the lender or the builder have done the legal legwork. As a buyer, you are the one investing your and your family's emotional, physical, and financial well-being in the property. So make sure you have a lawyer to make all the checks on your behalf.'Do not take blind comfort in easy financing offers. 'Subvention schemes and deferred payment plans are means by which buyers can pay for their homes in a more flexible manner, based on how far along the construction is. While this makes it easier for them to pay, such schemes are only useful if they are clear and have explicit terms, and if the developer can be relied upon to complete the project as per schedule,' says Pharande. Buyers should clarify who will be responsible if the builder misses interest payments, as such lapses can lead to missed payments that negatively impact the buyer's credit score, even though the disbursed funds were for construction, not personal use, insists the builder's track record and financial IndiaWatch out for front-loaded payment schedules. Paying 70-80% of the flat cost within 18 months while the project is scheduled for completion years later is a red flag. 'Make sure the payment schedule reflects the stages for actual completion of your flat and also till the handing over of all the legal documents like no-objection certificate (NOC) and occupation certificate,' asserts Shetty. You do not want the bank to advance the entire amount even if the entire post-completion paperwork is pending. This change needs to be made in the sale deed before it is signed and registered, he says. Further, insist on third-party verification of construction milestones before any payment. Relying solely on builder statements or certificates increases don't fall for incentives offered by the builder while overlooking crucial aspects of the Shankar Singh of Colliers asserts, 'It's important to focus on the fundamentals, location, builder credibility, legal clearances, and construction quality, rather than flashy incentives.
Hindustan Times
5 days ago
- Business
- Hindustan Times
RBI rate pause: 3 smart and effective strategies home loan borrowers can use to reduce their EMI burden
In today's monetary policy meeting, the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.5%, following a cumulative 1% reduction over the past three policy reviews. The decision reflects the RBI's effort to balance domestic stability against a weakening global economic backdrop. Personal finance experts advise borrowers still repaying loans at significantly higher interest rates to consider switching to repo-linked lending products to reduce long-term borrowing costs. RBI has reduced the repo rate by 100 basis points this year. If your home loan interest rate hasn't decreased in line with this, you can approach your lender to request a better rate. (Photo for representational purposes only) (Pixabay) 'The RBI is exercising caution, preparing to act if external shocks, especially tariffs, begin to weigh more heavily on recovery. With no signal of imminent Fed cuts, the central bank is balancing internal stability against a weakening global backdrop,' says Adhil Shetty, CEO, Home loan rates have already fallen below 8% for prime borrowers, particularly in refinance and balance transfer cases. Borrowers still servicing loans at significantly higher rates should consider switching to repo-linked products to reduce long-term interest costs. Hacks for home loan borrowers to reduce EMIs There are several simple but effective ways one can reduce interest burden on their loans if the lender is not reducing the same even after RBI has cut repo rate considerably. Ask your lender to match lower market rates The RBI has reduced the repo rate by 100 basis points this year. If your home loan interest rate hasn't decreased in line with this, you can approach your lender to request a better rate. 'Most banks allow existing borrowers to opt for a lower interest rate by paying a nominal conversion or processing fee. This can help reduce your EMI without changing lenders,' says Raoul Kapoor, co-CEO, Andromeda Sales and Distribution. extra payments can cut years off your loan tenure Home loan borrowers can work with the lender to prepare the loan using annual bonus payout or other windfall gains from time to time as it is one of the most powerful ways to reduce interest costs. Even small additional payments toward the principal can result in substantial savings over time, says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA), and founder and chief investment advisor of SahajMoney, a financial planning firm. You can voluntarily ask the lender to increase your EMI if you have a good credit score and history and your financial history supports this. 'If one can afford it without impacting their essential spend then they can increase EMI annually by 5-10% as their income grows and can reduce loan tenure significantly,' says Kumar. A 5% increase in your EMI for the same Rs. 40 lakh loan would cost you an additional ~Rs. 1800, taking your EMI to Rs. 37,788. 'However, this small hike can bring down your outstanding tenure to less than 15 years and mean interest savings of Rs.18.82 lakhs over the next 15 years,' says Shetty. to a lower-rate lender can reduce EMIs and total interest paid Finally, if all this is not possible and your lender is not relenting then explore the option to transfer loan to another lender offering much lower interest rate if it helps in reducing overall interest burden during loan tenure after including associated costs, suggests Kumar. A lower interest rate can save you lakhs on your home loan. In the last six months, home loan interest rates have fallen by 1%. This means that a Rs. 40 lakh home loan for 20 years at 9% now costs 8%. 'A refinance will help you get an additional 25 basis points on that reduction, getting your interest down to 7.75%. That's a straight savings of ₹3,151 per month on your EMI, or ₹7.56 lakh in interest costs over the duration of the loan' says Shetty. As a borrower, each time the interest rates go up or down, the lenders hold your EMI steady and adjust the tenure of your loan. This drives the tenure up when rates go up, but is very beneficial when the rates fall. RBI repo rate: A lower interest rate can save you lakhs on your home loan. In the last six months, home loan interest rates have fallen by 1%. This means that a Rs. 40 lakh home loan for 20 years at 9% now costs 8%.(HT Graphic) 'If your interest rates fall by 1.25% when you refinance and you continue to pay the same higher EMI, then you reduce your tenure by 43 months, or 3 years and 7 months, and your interest savings over 20 years almost double to Rs. 15.65 lakh,' adds Shetty. Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
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Business Standard
31-07-2025
- Business
- Business Standard
FD rates up to 8.95%: Where to park money as markets reel from Trump tariff
The stock market traded in the red on Thursday as global jitters intensified following US President Donald Trump's announcement of a 25 per cent tariff on Indian goods. The move triggered risk-off sentiment, adding pressure to an already volatile market. Amid this uncertainty, fixed deposits (FDs) continue to be seen as a steady option for conservative savers, despite recent rate cuts by banks. The Reserve Bank of India has lowered the repo rate by 100 basis points across three consecutive policy meetings in 2025. Most banks have since reduced their deposit and lending rates. Even so, many savers remain drawn to the safety and predictability of FDs. 'Even with interest rates softening, fixed deposits remain a dependable choice for conservative savers. Their biggest strength lies in capital safety, predictable returns, and quick liquidity, regardless of market performance,' said Adhil Shetty, CEO, He added, 'With global cues like tariff threats unsettling investors, FDs offer the kind of stability many seek in turbulent times.' Here's a look at some of the highest FD rates currently on offer across small finance banks, private sector banks, and non-banking financial companies (NBFCs), based on data from PaisaBazaar as of July 30, 2025. Small finance banks Slice Small Finance Bank offers the highest slab return among its peers—8.50 per cent—for a very narrow tenure window between 18 months 1 day and 18 months 2 days. Its 3-year deposit offers 8.25 per cent, while the 5-year option is at 7.75 per cent. The 1-year FD fetches a lower 6.75 per cent. The sharp jump in rates for a specific slab makes it appealing for short-term investors willing to lock in funds precisely. Jana Small Finance Bank provides a top rate of 8.20 per cent for 5-year FDs. It also offers 7.50 per cent for a 1-year tenure and 7.75 per cent for 3 years, making it a consistent option for those seeking high returns across different durations. Suryoday Small Finance Bank matches this trend with an 8.40 per cent return on 5-year FDs. Its 3-year rate stands at 8.15 per cent, while both 1-year and 5-year deposits earn 7.50 per cent and 8.40 per cent, respectively. The uniformity in rates across tenures makes it a solid pick for medium to long-term savers. Unity Small Finance Bank offers 7.75 per cent for a 1001-day deposit. While the 1-year rate is relatively low at 6.50 per cent, its 3-year and 5-year options offer a consistent 7.25 per cent, appealing to those seeking balance across terms. Utkarsh Small Finance Bank gives a peak return of 7.65 per cent for FDs maturing in 2 to 3 years. The 1-year rate is lower at 6.00 per cent, but both the 3-year and 5-year options offer 7.65 and 7.25 per cent, respectively, providing mid-range consistency. Equitas Small Finance Bank offers a peak of 7.60 per cent for a tenure of 888 days. Other durations offer slightly lower rates—7.25 per cent for both 1-year and 3-year terms, and 7.00 per cent for a 5-year FD. It suits those looking for moderate returns over shorter horizons. ESAF Small Finance Bank also offers 7.60 per cent but only for a specific 444-day slab. Its 1-year rate is much lower at 4.75 per cent, though it rises to 6.00 per cent for 3-year FDs and 5.75 per cent for 5 years. Despite the appealing slab rate, the overall offering is less competitive over regular tenures. Ujjivan Small Finance Bank's highest rate is 7.60 per cent for a 2-year deposit. It offers 7.50 per cent for 1 year and 7.20 per cent for both 3- and 5-year tenures, placing it just below top competitors for longer-term savings. Private sector banks Bandhan Bank gives a peak return of 7.40 per cent for deposits between 2 years and less than 3 years. It offers 7.25 per cent for both 1-year and 3-year deposits, but its 5-year FD earns only 5.85 per cent, making it a stronger option for short- to mid-term savers. CSB Bank also tops out at 7.40 per cent, available for a 13-month slab. However, its standard 1-year deposit earns just 5.00 per cent, and the 3- and 5-year tenures yield 5.75 per cent, which places it on the lower end among private banks. DCB Bank offers 7.40 per cent for a very narrow slab of 27 to 28 months. For 1-, 3-, and 5-year FDs, it maintains a flat 7.00 per cent, offering consistency rather than peak yields. SBM Bank India offers its highest rate of 7.60 per cent for terms slightly above 18 months but below 2 years and 3 days. Its 1-year and 3-year deposits both yield 7.05 per cent, while the 5-year FD stands at 7.50 per cent. It presents a relatively stable return profile across tenures. Corporate fixed deposits Muthoot Capital Services, rated A+ by CRISIL, offers the highest return among corporate FDs at 8.95 per cent for a 36-month term. It also provides 7.90 per cent for a 1-year deposit and 8.50 per cent for 5 years. Senior citizens receive an additional 0.25 per cent. While returns are strong, the lower credit rating compared to AAA peers suggests slightly higher risk. Manipal Housing Finance Syndicate, with an ACUITE A rating, offers 8.25 per cent across 1-, 2-, and 3-year tenures, dipping to 7.75 per cent for 5 years. It gives a 0.25 per cent boost to senior citizens and is suited to short- to medium-term savers comfortable with moderate risk. Can Fin Homes, rated AAA by ICRA, offers 8.00 per cent for a 3-year FD. Its 1-year and 5-year rates are lower at 6.50 and 6.75 per cent, respectively. With senior citizen benefits of 0.25 to 0.50 per cent, it appeals to conservative investors focused on credit quality. Shriram Finance, with a rating of AA+ from both ICRA and India Ratings, offers a top FD rate of 7.72 per cent for 3-year, 50-month (Jubilee), and 5-year terms. The 1-year rate stands at 7.11 per cent. It offers additional incentives—0.50 per cent for senior citizens, 0.15 per cent for renewal, and 0.05 per cent for women depositors. These are monthly rest FDs, making them attractive for regular income seekers. Credit ratings on corporate FDs When evaluating company FDs, investors often refer to credit ratings issued by agencies such as CRISIL, ICRA, and CARE. These indicate the issuer's ability to repay. • AAA or AA suggests low risk and strong repayment capacity • A or BBB indicates moderate risk with some market sensitivity • BB or lower denotes higher risk and greater likelihood of default While ratings offer a useful reference point, it's still worth checking the company's financials and reputation before investing.
Business Standard
30-06-2025
- Business
- Business Standard
FD interest rates up to 9.10%: 15 banks offer 7.80% or more to seniors
Can you still get over 8 per cent on a fixed deposit? Despite this year's repo rate cuts, the answer is yes—at least for now. The Reserve Bank of India (RBI) has cut the repo rate by 100 basis points since February 2025. In response, several banks have reduced their fixed deposit (FD) interest rates. But a few small finance and private banks continue to offer interest rates above 7.80 per cent, especially for senior citizens. Top FD rates as of June 30, 2025 For deposits below Rs 3 crore, some small finance banks are offering relatively high FD rates for senior citizens. As of June 28, 2025, Unity Small Finance Bank is offering the highest FD rate at 9.10 per cent for a tenure of 1001 days. Suryoday Small Finance Bank follows with 8.80 per cent for tenures above 30 months and up to 3 years. Utkarsh Small Finance Bank is offering 8.75 per cent for deposits held between 2 and 3 years. Slice Small Finance Bank is offering 8.50 per cent for a narrowly defined window of 18 months 1 day to 18 months 2 days. Equitas Small Finance Bank offers 8.40 per cent for a tenure of 888 days. All rates apply to senior citizens and are available on deposits of less than Rs 3 crore. These figures are based on each bank's official website as of June 28, 2025. Regular depositors can also find rates above 8 per cent, though options are fewer. Experts say locking in the current rate may help, as further cuts could follow if the repo rate continues to drop. Tax rules on FD interest Interest earned on fixed deposits is taxable. If the interest exceeds a certain threshold, tax is deducted at source. 'Interest earned on FDs is taxable, with tax deducted at source (TDS) if it exceeds a specified limit,' said Adhil Shetty, CEO of BankBazaar. The 2025 Union Budget raised the TDS threshold: For general citizens: From Rs 40,000 to Rs 50,000 For senior citizens: From Rs 50,000 to Rs 1 lakh Take the example of Nupur, a 38-year-old resident of Noida. She earns Rs 75,000 in annual FD interest. Since the new threshold for general citizens is Rs 50,000, TDS applies on the excess Rs 25,000. At 10 per cent, the deducted tax is Rs 2,500. That Rs 75,000 also counts as part of her total taxable income. But if her overall income is below Rs 2.5 lakh, she doesn't owe additional tax. To avoid TDS in such a case, she can submit Form 15G at the start of the financial year, declaring her income falls below the taxable limit. Senior citizens can submit Form 15H for the same purpose. Take a look at the banks offering the highest interest rate as of June 28, according to PaisaBazaar: Small Finance Banks 1. Equitas Small Finance Bank Highest rate: 8.40 per cent for 888 days 1-year: 8.10 per cent 3-year: 8.00 per cent 5-year: 7.75 per cent 10-year: 7.75 per cent No extra rate for super senior citizens 2. ESAF Small Finance Bank Highest rate: 8.10 per cent for 444 days 1-year: 5.25 per cent 3-year: 6.50 per cent 5-year: 6.25 per cent 10-year: 6.25 per cent No extra rate for super senior citizens 3. Jana Small Finance Bank Highest rate: 8.25 per cent (Above 1 year to 3 years) 1-year: 8.00 per cent 3-year: 8.25 per cent 5-year: 8.20 per cent 10-year: 7.00 per cent No extra rate for super senior citizens 4. Slice Small Finance Bank Highest rate: 9.00 per cent (18 months 1 day to 18 months 2 days) 1-year: 7.00 per cent 3-year: 8.25 per cent 5-year: 8.25 per cent 10-year: 6.75 per cent No extra rate for super senior citizens 5. Suryoday Small Finance Bank Highest rate: 8.80 per cent (Above 30 months to 3 years) 1-year: 8.30 per cent 3-year: 8.80 per cent 5-year: 8.40 per cent 10-year: 7.65 per cent No extra rate for super senior citizens 6. Ujjivan Small Finance Bank Highest rate: 8.25 per cent for 2 years 1-year: 8.15 per cent 3-year: 7.70 per cent 5-year: 7.70 per cent 10-year: 7.00 per cent No extra rate for super senior citizens 7. Unity Small Finance Bank Highest rate: 9.10 per cent for 1001 days 1-year: 7.50 per cent 3-year: 8.50 per cent 5-year: 8.50 per cent 10-year: 7.50 per cent No extra rate for super senior citizens 8. Utkarsh Small Finance Bank Highest rate: 8.75 per cent (2 to 3 years) 1-year: 6.75 per cent 3-year: 8.75 per cent 5-year: 8.25 per cent 10-year: 7.75 per cent No extra rate for super senior citizens Private Sector Banks 9. Bandhan Bank Highest rate: 8.25 per cent for 1 year 1-year: 8.25 per cent 3-year: 7.75 per cent 5-year: 6.60 per cent 10-year: 6.60 per cent No extra rate for super senior citizens 10. CSB Bank Highest rate: 7.90 per cent for 13 months 1-year: 5.50 per cent 3-year: 6.25 per cent 5-year: 6.25 per cent 10-year: 6.50 per cent No extra rate for super senior citizens 11. DCB Bank Highest rate: 7.90 per cent (25 to 26 months) 1-year: 7.25 per cent 3-year: 7.25 per cent 5-year: 7.25 per cent 10-year: 7.25 per cent No extra rate for super senior citizens 12. Jammu & Kashmir Bank Highest rate: 7.80 per cent for 888 days 1-year: 7.25 per cent 3-year: 7.25 per cent 5-year: 7.00 per cent 10-year: 7.00 per cent No extra rate for super senior citizens 13. RBL Bank Highest rate: 7.80 per cent for 500 days 1-year: 7.60 per cent 3-year: 7.60 per cent 5-year: 7.50 per cent 10-year: 7.50 per cent Super senior citizens get +0.25 per cent on all tenures 14. SBM Bank India Highest rate: 8.55 per cent (Above 18 months to less than 2 years 3 days) 1-year: 8.00 per cent 3-year: 7.80 per cent 5-year: 8.25 per cent 10-year: 7.50 per cent No extra rate for super senior citizens 15. YES Bank Highest rate: 7.85 per cent (3 years to less than 5 years) 1-year: 7.25 per cent 3-year: 7.85 per cent 5-year: 7.50 per cent 10-year: 7.50 per cent
Mint
22-06-2025
- Business
- Mint
RBI's rate cut may not bring immediate EMI relief for all borrowers
The Reserve Bank of India (RBI) has cut the repo rate by 50 basis points (bps) and the cash reserve ratio (CRR) by 100 bps, raising hopes among borrowers of lower EMIs. But rate cuts by the central bank don't automatically translate into immediate relief for all loan categories. The actual transmission, whether faster, slower, or none at all, will depend on multiple factors, including the type of loan, when it was taken, the lending institution, and the benchmark it is linked to. Fixed or floating: the nature of your loan matters Certain loan categories — particularly personal loans and credit card debt — are typically offered at fixed interest rates. The rate set at the time of disbursement remains unchanged through the tenure of the loan, regardless of RBI's policy moves. Read this | Mint Explainer: RBI cuts repo rate by 50 bps. How will it impact lenders and borrowers? 'Most lenders offer loans in these categories as fixed-rate loans. Then there are categories, which are more of a mixed bag. For example, loans such as car loans and loans against securities," said Adhil Shetty, chief executive officer of BankBazaar. To be sure, some public sector banks even offer personal loans with a floating rate option. When it comes to car loans or loans against securities, the interest rate may be fixed or floating. If floating, these are linked either to internal or external benchmarks set by the banks. Since 1 October 2019, all new floating-rate loans must be linked to external benchmarks. However, older loans are often tied to internal benchmarks. According to RBI's Annual Report 2024-25, 35.9% of floating-rate loans are still linked to the marginal cost of funds-based lending rate (MCLR), an internal this: How you can get a loan against an insurance policy Home loans are predominantly floating-rate products, while fixed-rate options are also available. Borrowers who took home loans after October 2019 are generally linked to external benchmarks, while older loans may still be tied to MCLR. This distinction is crucial in determining how quickly borrowers benefit from the RBI's latest repo cut. MCLR vs EBLR: how your benchmark affects transmission For loans linked to MCLR, the transmission is typically delayed due to reset cycles, which may occur annually or half-yearly depending on the bank. Even though the RBI provides the formula for calculating MCLR, banks apply their own internal cost structures to arrive at their minimum lending rates. 'While the formula for calculating MCLR is given by the RBI, it is an internal benchmark, which means it will vary across banks. Banks will use their internal costs and calculation of risks to decide their minimum lending rate under MCLR framework. The variables include cost of funds for the banks (deposits), other borrowings, return on net worth, operating costs, tenor premium (longer loan tenor would mean higher risk premium) and negative carry from RBI's cash reserve ratio," explained Joydeep Sen, corporate trainer and author. The CRR, the percentage of deposits banks are required to maintain with the RBI, results in negative carry because these funds typically earn lower returns. Banks are allowed to factor this into their MCLR calculations. By contrast, loans under the external benchmark lending rate (EBLR) regime, most commonly linked to RBI's repo rate, usually see faster transmission. The repo-linked lending rate (RLLR) adjusts more swiftly, typically on a quarterly reset this: How you can get loan against mutual funds without breaking it As the repo-linked lending rate (RLLR) is directly linked to RBI's repo rate, it will usually lead to full quantum of repo cut getting passed onto the borrowers and the transmission is likely to happen faster as the EBLR framework follows quarterly reset cycle. NBFC loans: more flexibility, less transmission certainty For borrowers with loans from non-bank financial companies (NBFCs), the picture is more complex. While NBFCs are regulated by RBI, they are not mandated to follow the benchmark frameworks applicable to banks. 'NBFCs have their internal models to determine their base rates. These rates are influenced by factors such as cost of funds, overhead costs and asset-liability mismatches," pointed out Jagadeesh Mohan, founder of EMI Saver and former PhonePe executive. For NBFCs, assets are the loans they have extended, and liabilities are funds borrowed from banks, debt markets, or depositors. Asset-liability mismatches occur when most borrowings are of short tenure, while loans extended have longer tenures. Also read: How stock market investors can use liquid ETFs to manage cash Additionally, NBFCs can set their own reset frequencies. Existing borrowers may not necessarily benefit from RBI's repo cut, or the impact may be limited depending on the lender's funding costs, competition, and business strategy. 'NBFCs with better credit ratings might be better placed to pass on the benefits of RBI's repo cut due to the lower cost of raising funds on account of their credit rating and better access to funds through their distribution channel," said Abhishek Kumar, a registered investment advisor and founder of SahajMoney.
