Latest news with #ExternalBenchmarkLendingRate
Mint
21 hours ago
- Business
- Mint
Explainer: RBI cuts repo rate by 50 bps. How will it impact lenders and borrowers?
Mumbai: The Reserve Bank of India's (RBI) Monetary Policy Committee on Friday cut the repo rate by 50 basis points (bps) to 5.50%. This is the third straight rate cut, leading to a cumulative reduction of 100 bps since the easing cycle began in February. As part of the monetary policy decision to support growth, the committee also reduced the cash reserve ratio (CRR)—the amount of funds that banks need to park with RBI –by 100 bps. However, the rate-setting panel changed the policy stance from 'accommodative' to 'neutral', citing limited headroom for monetary policy to support growth. How will RBI's actions impact bank customers? The Reserve Bank of India's 50 bps rate cut on Friday is likely to lead to a reduction in deposit interest rates, hurting bank customers who have enjoyed higher returns amidst fierce competition for deposits. Fixed deposit interest rates are expected to drop as banks align them with lower asset pricing. Also read: RBI aims to boost economic growth, liquidity with jumbo rate and CRR cuts Since the second rate cut in April, several banks have already announced reduction in rates on some buckets of savings account deposits and fixed deposits in order to protect margins as loan yields fall. Fixed deposit rates have fallen by 30-70 bps since February 2025, according to a research report by SBI on Friday, which said that further deposit rate cuts can be expected from banks given expectations of a rapid transmission of policy rate cuts. However, while depositors might take a hit, bank borrowers stand to benefit from a reduction in their loan rates. To ensure greater transparency and direct transmission of monetary policy, banks are now required to price all their floating rate retail and small business loans using the External Benchmark Lending Rate (EBLR), with the repo rate serving as the primary benchmark. Accordingly, retail customers and small business borrowers will see a reduction in loan rates and equated monthly installments (EMIs) for existing as well as fresh loans. Banks are required to reset these rates at least once every three months. Also read: RBI reschedules August MPC meeting due to administrative exigencies: Check new date here 'Today's announcement will not only push banks' external benchmark linked lending rates lower, but will also reduce marginal cost of funds-based lending rate (MCLR) and deposit rates, thereby bringing in greater pace and intensity to transmission," said Siddhartha Sanyal, chief economist and head research of Bandhan Bank. How will the rate cut impact lenders? Lenders stand to face immediate pressure on margins as transmission of the 50 bps rate cut tends to be faster on the asset side through EBLR-linked loans. On the other hand, deposit transmission usually takes 3-6 months, which implies that banks will continue to face pressure on margins for the next two quarters. Even so, deposit mobilization challenges for banks are seen easing given the substantial slowdown in credit growth and massive liquidity infusions by the RBI over the past few months. As liquidity improves, banks will likely reduce deposit rates sooner, accelerating the transmission of policy changes. 'The steep cut of 50 bps in repo rate is expected to sharply impact the net interest margins (NIMs) of the banks and Q2FY26 is expected to be the weakest," said Sachin Sachdeva, vice-president, and sector head of financial sector ratings, ICRA Ltd. Also read: MPC's larger-than-expected rate cut hints at pause to easing cycle: Icra's Nayar Thereafter, the pressure on NIMs is expected to decline with the benefit starting to flow in from CRR cut and extent of cut taken by banks on their saving rate deposits while the term deposit rates will reprice downward with a lag, said Sachdeva. Since January, weighted average lending rate (WALR) on fresh loans has fallen from 9.4% to 9.26% in April. In comparison, the weighted average rate on fresh deposits rose to 6.65% in March from 6.49% in February. Following the second rate cut, the average deposit rate fell to 6.3% in April. Moreover, the surprise 100 bps cut in CRR announced on Friday is expected to offer relief to banks by freeing up their capital, allowing for more lending. The CRR cut, effective from September 2025, will lead to a benefit of 3-4 bps on banks' margins for FY26, ICRA's Sachdeva said. As per the SBI report cited earlier, the CRR cut will release primary liquidity of around ₹2.5 trillion to the banking system by December, and also help reduce overall cost of funds for banks.
Economic Times
02-05-2025
- Business
- Economic Times
Interest rates are falling, time to switch your home loan regime: Save above Rs 8 lakh by switching to EBLR; Know how
What is EBLR? Live Events How much savings in monthly home loan EMI can you expect after switching to EBLR rate? Home loan's outstanding balance: Rs 30 lakh Remaining tenure of the home loan: 15 years EBLR EMI at 8.65%: Rs 29,807 Table showing the calculation of home loan EMI savings on switching to EBLR Interest Rate Regime MCLR BPLR Base rate Existing interest rate 9% 11.15% 10.40% Current EMI Rs 30,428 Rs 34,381 Rs 32,976 Monthly savings by shifting to EBLR Rs 621 Rs 4,574 Rs 3,170 Annual savings by shifting to EBLR Rs 7,457 Rs 38,036 Rs 32,976 Total Savings during repayment Rs 1,11,859 Rs 5,70,540 Rs 8,23,402 What are the charges which bank levy for such a shift in interest rate regime and generally how long does it take for such a request to process? Interest rates have started falling recently, with most of the lenders reducing their interest rates after the Reserve Bank of India (RBI) cut the repo rate by 0.5% within a span of two months. The lower interest rates will result in huge savings for home loan borrowers, as their home loan EMI will come down. If they decide to pay the same EMI amount, despite a rate cut, their home loan will be repaid much faster, and they will save a good amount on interest. However, not all home loan borrowers will benefit equally. The benefit of these cuts depends on their interest rate the biggest question is: which interest rate regime will offer you lower home loan EMIs? There are four interest rate regimes, which vary based on the timing of your home loan acquisition. Borrowers who secured their home loans before 2010 had the option to take them on the BPLR rate, and those who took their home loans between July 1, 2010, and March 31, 2016, had to take them on the base rate. Similarly, those who took their home loans between April 1, 2016, and September 30, 2019, had to take them on a Marginal Cost of Funds-based Lending Rate (MCLR). However, from October 1, 2019, the External Benchmark Lending Rate (EBLR) replaced MCLR. So, the question arises—which interest rate regime (BBLR, base rate, MCLR or EBLR) can make the case for a lower home loan interest cost and thus a lower home loan EMI?Read below to find out how much money you can save by switching interest rate to or External Benchmark Lending Rate, is a framework used by banks in India to set interest rates on home loans, where the rates are directly linked to an external benchmark, such as the RBI's repo rate. This means that when the RBI adjusts its repo rate, EBLR-linked loan rates can also who took out a home loan before EBLR have to pay a higher home loan EMI. This is because the EBLR rate is considered one of the most competitive rates amongst all regimes, and now it offers one of the lowest interest rates after the RBI cut the repo rates twice by 0.25% in its last two monetary policy Kumar, a SEBI-registered RIA and Founder of SahajMoney, says, 'EBLR is directly linked to the RBI's repo rate (6.00% (repo rate) + 2.65% spread), making it more transparent and reflective of interest rate scenarios.'While EBLR was launched, banks offered all existing borrowers the option to switch to EBLR; however, not all borrowers exercised that you are among them, then chances are that you would still be paying a higher interest rate on your home loan. It is the time to check the interest rate on your home loan and take action to save on the interest amount that you are paying just because of being to CEO Adhil Shetty, the older benchmark rates are stickier in comparison to BPLR. 'Around 40% of all floating rate bank loans are still on MCLR and BPLR, where the rates may be much higher compared to repo-linked loans. So, it's advisable to speak to your bank and convert your loan to a repo-linked one,' he home loan interest rates are falling, calculations show that it is beneficial for borrowers to shift to EBLR rate if their home loan is under MCLR or base rate or BPLR per the calculations, if the EMI on EBLR rate (8.65%) is Rs 29,807 then you can save up to 38,036 in a year in comparison with BPLR. In comparison with MCLR you can save up to Rs 7,457 in a SahajMoneyAssumptions:1. BPLR rate is after 4% discount by bank2. In EBLR there are 2 additional charges CRP (Credit Risk Premium) and BSP (Business Strategic Premium) that change with credit profile and with product. We have considered only 8.65% without CRP and BSP.3. EBLR stays constant at 8.65% and other interest rates does not can change your home loan interest rate regime any day you wish as your bank will process your request if you apply to switch your home loan to Sharma, Founder- Radian Finserv, says, "Banks typically charge a nominal conversion or administrative fee, around Rs. 5000 + GST. The shift usually takes 7 to 15 working days, depending on the bank's internal process and borrower documentation. It's a one-time cost that can result in long-term savings."Shetty agrees with Sharma and says if you are converting your loan with the same bank, you are usually charged a processing fee. The turnaround time for this conversion is generally a few days and usually there is no paperwork involved since the property's documents are already with the when transferring home loan to another bank and converting it into EBLR can mean incurring a cost of 0.5% to 1% of the loan says transferring your loan to a new bank makes sense where there's a substantial discount in interest rates being offered along with other benefits like easier pre-payment terms.'The cost of a transfer is usually 0.5-1% of the loan. The costs include processing fee, legal fees, MOD charges, and pre-EMI interest on the new loan, and pre-closure costs (such as simple interest or pre-closure fees) on the old loan. You will easily recover the costs in a year if the rate difference is substantial. The Turnaround time is typically a fortnight, but may get lengthier if the bank insists on additional scrutiny,' says Shetty.
Time of India
02-05-2025
- Business
- Time of India
Interest rates are falling, time to switch your home loan regime: Save above Rs 8 lakh by switching to EBLR; Know how
What is EBLR? Live Events How much savings in monthly home loan EMI can you expect after switching to EBLR rate? Home loan's outstanding balance: Rs 30 lakh Remaining tenure of the home loan: 15 years EBLR EMI at 8.65%: Rs 29,807 Table showing the calculation of home loan EMI savings on switching to EBLR Interest Rate Regime MCLR BPLR Base rate Existing interest rate 9% 11.15% 10.40% Current EMI Rs 30,428 Rs 34,381 Rs 32,976 Monthly savings by shifting to EBLR Rs 621 Rs 4,574 Rs 3,170 Annual savings by shifting to EBLR Rs 7,457 Rs 38,036 Rs 32,976 Total Savings during repayment Rs 1,11,859 Rs 5,70,540 Rs 8,23,402 What are the charges which bank levy for such a shift in interest rate regime and generally how long does it take for such a request to process? The interest rate has started falling as most of the lenders started reducing their interest rate after RBI cut the repo rate by 0.5% within a span of two months. It will deliver a huge saving for home loan borrowers as their home loan EMI will come down. If home loan borrowers decide to pay the same EMI despite a rate cut, their home loan will be repaid much faster and they will end up saving a good amount of interest. However, not all home loan borrowers will benefit equally. The advantage that they will get from these cuts will depend upon the interest rate regime to which they of the biggest questions is which interest rate regime can give lower home loan EMIs. This is because there are four interest rate regimes, depending upon when you took the home loan. In the case of home loan borrowers who took home loans before 2010, they had the option to take it on BPLR rate, those who took home loan after July 1, 2010 and till 31 March 2016, had to take the loan on base rate. Similarly those who took home loan on or after April 1, 2016 till September 30, 2019 had to take it on MCLR. From October 1, 2019, MCLR was replaced by EBLR. So a question can come to mind about which interest rate regime (BBLR, base rate, MCLR or EBLR) can make the case for a lower home loan's interest cost and thus lower home loan below to find out how much money you can save by switching interest rate to (External Benchmark Lending Rate) is a framework used by banks in India to set interest rates on home loans, where the rates are directly linked to an external benchmark, such as the RBI repo rate. This means that when the RBI adjusts its repo rate, EBLR-linked loan rates can also who took out a home loan before EBLR, have to pay a higher home loan EMI. This is because the EBLR rate is considered one of the most competitive rate amongst all regimes and it now offers one of the lowest interest rates after the Reserve Bank of India (RBI) cut the repo rates twice by 0.25% in its last two monetary policy Kumar, SEBI RIA, founder of SahajMoney, says: 'EBLR is directly linked to the RBI's repo rate (6.00% (repo rate) + 2.65% spread), making it more transparent and reflective of interest rate scenarios.'While EBLR was launched the banks offered an option to all old borrowers to switch to EBLR however not all borrowers exercised that to Adhil Shetty - CEO - 'The older benchmark rates are stickier in comparison to BPLR. Around 40% of all floating rate bank loans are still on MCLR and BPLR where the rates may be much higher compared to repo-linked loans. So it's advisable to speak to your bank and convert your loan to a repo-linked one.'If you are among them then chances are that you would still be paying a higher interest rate on your home loan. It is the time when you check your home loan interest rate and take action to save interest amount that you are paying just because of being home loan interest rates are falling, calculations show that it is beneficial for borrowers to shift to EBLR rate if their home loan is under MCLR or base rate or BPLR per the calculations, if the EMI on EBLR rate (8.65%) is Rs 29,807 then you can save up to 38,036 in a year in comparison with BPLR. In comparison with MCLR you can save up to Rs 7,457 in a SahajMoneyAssumptions:1. BPLR rate is after 4% discount by bank2. In EBLR there are 2 additional charges CRP (Credit Risk Premium) and BSP (Business Strategic Premium) that change with credit profile and with product. We have considered only 8.65% without CRP and BSP.3. EBLR stays constant at 8.65% and other interest rates does not can change your home loan interest rate regime any day you wish as your bank will process your request if you apply to switch your home loan to says if you're converting your loan with the same bank, you are usually charged a processing fee. The turnaround time for this conversion is generally a few days and usually there is no paperwork involved since the property's documents are already with the agrees with Shetty and adds: 'Some banks may charge processing fees ranging from 0.5% to 1% of the outstanding loan amount for regime conversion.'However when transferring home loan to another bank and converting it into EBLR can mean incurring a cost of 0.5% to 1% of the loan says transferring your loan to a new bank makes sense where there's a substantial discount in interest rates being offered along with other benefits like easier pre-payment terms.'The cost of a transfer is usually 0.5-1% of the loan. The costs include processing fee, legal fees, MOD charges, and pre-EMI interest on the new loan, and pre-closure costs (such as simple interest or pre-closure fees) on the old loan. You will easily recover the costs in a year if the rate difference is substantial. The Turnaround time is typically a fortnight, but may get lengthier if the bank insists on additional scrutiny,' says Shetty.
