With the increase in i-EBLR, your EMI will also increase. If your home loan is linked to i-EBLR and the EMI for the month has not been deducted yet, the bank will calculate the new EMI amount on the outstanding principal.
Here is an example to show how much your EMI will increase after the latest hike in i-EBLR. Suppose you have taken a home loan of Rs 30 lakh. Earlier I-EBLR was 8.60% and now with increase of 50 basis points in I-EBLR, the new I-EBLR will be 9.10%.
What is the external benchmark-based lending rate?
In September 2019, RBI introduced a mechanism to link all new floating rate personal or retail loans and floating rate loans to micro and small enterprises with an external benchmark. This was done to ensure effective transmission of changes in key policy rates. It is observed that internal benchmarks such as Base Rate/MCLR did not effectively transmit monetary policy decisions.
As per external benchmark-based lending rates, all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to micro and small enterprises will be benchmarked for any of the following:
- RBI Policy Repo Rate
- Government of India 3 Month Treasury Bill Yield published by Financial Benchmarks India Private Limited (FBIL)
- Government of India 6-Month Treasury Bill Yield published by FBIL
- Any other benchmark market interest rate published by FBIL.
The interest rate under the external benchmark will be reset at least once in three months. Further, banks are free to fix the spread on an external benchmark. However, the credit risk premium may change only if there is a substantial change in the borrower’s credit assessment, as agreed in the loan contract. In addition, other components of the spread, including operating costs, can be changed once in three years.