Wednesday, May 18, 2022
HomeBusinessHome loan rate: ICICI Bank and Bank of Baroda loans become expensive,...

Home loan rate: ICICI Bank and Bank of Baroda loans become expensive, know how much your EMI will increase

New Delhi: The effect of increasing the repo rate of RBI has started showing. In a surprise decision on Wednesday, the RBI had announced an increase in the repo rate by 40 basis points and the cash reserve ratio (CRR) by 50 basis points. Soon after this, banks have also started increasing the interest rates of loans. Bank of Baroda and ICICI Bank have made loans expensive. Both these banks have increased the interest rates (external benchmark linked loan interest rates) linked to the repo rate.

Private sector ICICI Bank said in a statement released on its website that according to the policy repo rate of RBI, the bank has increased the Actual Benchmark Lending Rate (I-EBLR). It has been increased by 40 basis points to 8.10% with immediate effect. Bank of Baroda has also reduced the Repo Linked Lending Rate (BRLLR) for retail loans to 6.90%.

What is External Benchmark Loan
With effect from October 1, 2019, RBI made it mandatory to link all new personal or retail loans with floating rate to an external benchmark. Banks are free to fix any external benchmark. The External Benchmark Lending Rate is the minimum rate of interest on a loan. The external benchmark also includes the RBI Repo Rate. This is the lowest rate of interest on a loan. Banks charge a credit risk premium over the external benchmark lending rate and repo rate for lending.

how much will the installment increase
It is believed that soon more banks can also announce to increase the interest rates. A 40 bps hike in the repo rate will increase the cost of borrowing for both old and new loans. This will especially affect those people who are thinking of taking a home loan. Also, loans linked to the external benchmark rate, especially the repo rate, will also become costlier.

For those whose loans are running and linked to the repo rate or any other interest rate benchmark, there will be no change in the installment till the next reset date. The new interest rate on their reset date will be calculated based on the benchmark rate applicable on the reset date and credit spread. This new interest rate will be applicable till the next reset date of their loan. During this period, even if RBI makes any changes in the repo rate in the interim, their interest rate will remain the same. The reduction in repo rate will not have any effect on loans taken at fixed interest rates.

You can read the stories of Economic Times for excellent articles related to more than 20 sectors of business and in-depth information related to the industry. Click here to read the informative information of Economic Times.


Html code here! Replace this with any non empty raw html code and that's it.


Most Popular