Here we talk about,the system of evaluation of interest rates on home loans in India.Do you know,what is interest rates?
Interest rates are principal amount is paid along with the lending amount.Various banks in India having,various interest rates.You will find lower interest rates in nationalised banks as compared to private banks.The interest rate plays an important role in deciding our EMI cost.In past 10-15 years,the home loans are not much attractive because it has limited amount of schemes,but,now-a-days it is more attractive because it owns a numerous loan incentive schemes and best interest rates,friendly to our income and budget.In last six years,the interest rates has been reached at their lowest level.
All this process is controlled by, Reserve Bank of India,but,even there is different interest rates for different banks,due to there policies,terms and conditions and on some factors.The interest rate increase on your EMI,if you debt with EMI.It means,if you don’t pay your one month EMI on time,the rate will increase,as penalty.
Now,let talk about the factors on which interest rates is based on:-
1.Repo Rate:-Repo rate is a fixed rate system, for a fixed amount of money,by Reserve Bank of India, through which it lend money to the banks.If bank demands for extra money,the RBI can increase the repo rate by it’s own choice,which directly affects the interest rates on our home loans.The high repo rate imposed by RBI on extra amount,the bank fulfill it by increasing the interest rates on home or other loans.Now take an example:-If RBI is lending ₹100 at 10% of interest,If bank demands for extra amount RBI charges ₹100 at 20% of interest.Now,the bank will fulfill this 10% of extra money of interest by charging on our home loans interest rate.
2.Marginal Cost Fund Based Lending Rate[MCLR]:-Before April 2016,MCLR is known as the base rate,which was minimum interest rate issued by RBI,on the basis of which,the bank lend money to their customers and customers could not avail a lower interest rate,then the RBI’s rate.Although,some banks are providing loans at lower base rates to their favourite customers by exploiting the rules of RBI base rates.To overcome this problem,RBI introduced MCLR in April 2016,and it is a benchmark lending rate which is set at five different times annually.It changed according to the repo rates.All home loans issued before, April 2016,are linked with MCLR and follows the rules and regulations of MCLR.
Now,take an example:-Let assume that,RBI is providing ₹100 at 10% of interest rate to the bank,to lend to their customers.But,banks are providing same amount of money at interest rate of less than 10% to their favourite customers,by exploiting the base rate rule of RBI.So,to overcome this problem RBI introduced,MCLR in April 2016.
3.Reverse Repo Rate:-Reverse Repo Rate is just opposite of Repo Rate.In,repo rate RBI provide money to banks at some rate of interest.In reverse repo rate,RBI borrow from banks to fulfill money supply in Indian Economy.The higher reverse repo rate will contribute less and lower reverse repo rate will contribute higher.It means the high reverse repo rate will add little money of money to the Indian Economy as compared to lower reverse repo rate and vice-versa.This also influence on lending rates and home loan interest rates.
4.Cash Reverse Ratio:-It is a kind of cash deposit made by lender make with RBI.It is a little part of the total deposits of lender.It is done to ensure that lender has a back up cash for any crisis.
Cash Revenue Ratio is maintains a cash reverse,and let do not over issue their products and services.Thus,CRR, directly impacts the amount of money lenders can use to lend or invest.Thus,it also influence the home loan interest rates.
5.Statuatory Liquidity Ratio:-SLR is a relation between the liquid assets like,bonds and stocks and net demand and time liabilities.It is a kind of deposit made by commercial banks in addition of cash reverse ratio.So,the liquid assets will converted into cash,as per requirements.
So,these are the factors on which the home loans interest rates are based on,and RBI and Central Government is working tirelessly to stabilise all above factors to ensure loan interest rates more attractive and favourable for us.