With increasing I-EBLR, your EMI output will also increase. If your home loan is I-EBLR related and the month’s EMI has not yet been deducted, the bank will calculate the new EMI amount on the outstanding principal.
Here is an example showing how much your EMI will increase after the last I-EBLR rise. Suppose you have taken out a home loan of Rs 30 lakh. Previously, the I-EBLR was 8.60% and now, with the I-EBLR rising by 50 basis points, the new I-EBLR will be 9.10%.
What is the external benchmark lending rate?
In September 2019, the RBI introduced a mechanism to link all new personal or retail variable rate loans and micro and small business variable rate loans to external references. This was done to ensure the effective transmission of policy rate changes. It had been observed that internal benchmarks such as the base rate/MCLR did not allow effective transmission of monetary policy decisions.
In accordance with the external benchmark lending rates, all new personal or retail variable rate loans (housing, auto, etc.) and micro and small business variable rate loans must be benchmarked against one of the following:
- Reserve Bank of India Policy Repo Rates
- Indian government 3-month treasury bill yield published by Financial Benchmarks India Private Ltd (FBIL)
- Indian government 6-month treasury bill yield published by FBIL
- Any other reference market interest rate published by FBIL.
The interest rate of an external benchmark is reset at least once every three months. In addition, banks are free to decide on the deviation from the external benchmark. However, the credit risk premium can only undergo a change when the borrower’s credit rating undergoes a substantial change, as agreed in the loan agreement. In addition, other components of the spread, including operating costs, could be changed once every three years.