Central Bank of India 
Home Loan Interest Rates

Central Bank of India has the distinction of being India's first commercial bank to be owned and managed by Indians. The credit for establishing this Swadeshi Bank goes to a visionary, Sir Sorabji Pochkhanawala in 1911. Earlier known as Central Bank of India Ltd, the bank was the first one to introduce recurring deposit scheme. It was also among the first banks to be nationalised along with 13 other banks on July 19, 1969.

The bank has the credit for introducing the first credit card in India. From its humble nationalistic origins in 1911, the bank has demonstrated exponential growth to spread its wings throughout the country. Today, it has more than 4650 branches situated in every state and union territory in India. The bank has earned a solid reputation for being people's bank over years of exemplary customer service.

Central Bank of India caters to every section of the Indian society from the richest to the poorest of people. It has introduced tailor-made products to suit the requirements of every Indian. An array of loan products of Central Bank of India includes the housing loan as the most prominent one. The bank offers Home Loans for purchase or construction of houses and apartments.

There are loan products that cater exclusively to renovation and home improvement. As a premier nationalised bank in this country, the bank is a frontrunner in the Pradhan Mantri Awas Yojana (PMAY), as well. The positive features of Central Bank of India Home Loan include attractive pricing. Its Home Loan interest rates are among the lowest in the banking industry in India.

Central Bank of India offers Home Loans linked to its Marginal Cost of Funds-based Lending Rate (MCLR). This concept came into force on April 01, 2016. The bank has expressed its intention to offer Repo rate-linked lending rates (RLLR) on its Home Loans on Central Bank of India and other retail loans very soon. RBI (Reserve Bank of India) has strictly instructed all banks to link their lending rates to an external benchmark rate with effect from October 01, 2019. The bank will announce its plan of action in this regard soon.

• All loans sanctioned after April 01, 2016 are linked with the bank's MCLR. The bank announces its MCLR at regular intervals depending on the market rates and the bank's asset-liability position.
• Loans sanctioned before April 2016 continue to offer the Base Rate-linked lending rates. The Base Rate structure came into force in July 2010.
• Before July 2010, the bank was following the Benchmark Prime Lending Rate (BPLR)
• Customers have the option of irrevocably switching over from the BPLR and Base Rate-linked interest rates to the MCLR on the payment of a one-time conversion fee.
• Similarly, the bank has announced that it will offer a free switch over from the MCLR to Repo-linked Lending Rate (RLLR) after the implementation of the concept.

Repo-rate Linked Lending Rates - A Real Market-related Rate Concept

The intention behind introducing the MCLR concept in April 2016 was to ensure that the customers get the benefit of the market-linked rates. The MCLR was the ideal step in the direction. However, banks were late in passing on the market rate effect to customers due to various internal factors. Secondly, the computation of MCLR is a complex process.

It consists of multiple factors, such as:

• Marginal Cost of Funds
• Tenor Premium
• Operating Cost
• CRR negative carry

Compared to the MCLR, the RLLR is a direct reflection of the market rates. It comprises of three factors that make it easy for banks to pass on the market rate effect to its customers.

The critical aspects of RLLR are:

• The Repo Rate: RBI revises the repo rates at frequent intervals. It is the ideal indication of the market rate scenario, as the repo rate denotes the rate of interest that RBI repurchases Government securities from the commercial banks. In other words, the repo rate is the rate at which banks borrow from RBI.
• The Net Interest Margin: The computation of RLLR envisages taking the average of the last ten years' net interest margin and rounding it off to the nearest '5 basis points'.
• Credit Risk: Every borrower carries a credit risk. Banks have internal methods or rating systems in place to gauge customer risk.

Central Bank of India will be introducing the RLLR concept soon by linking its Home Loan and other loans to it.

Central Bank of India Home Loan Interest - MCLR and Other Rates

• Central Bank of India will be publishing its MCLR on the 15th of every month. The present MCLR is with effect from September 15, 2019.

• For its Base Rate-linked loans, the Base Rate is 9.60% with effect from November 20, 2017
• The BPLR of Central Bank of India is 15%

Central Bank of India uses the benchmark rate of one-year MCLR to link to its lending rates. These rates are floating rates of interest. Hence, with every change in the MCLR, the rate of interest applicable to the respective loan products will change. It can bring about a difference in the monthly EMI. Alternatively, the loan repayment tenure can increase/decrease by maintaining the EMI as constant.

Central Bank of India has a pan-India presence. Hence, it is one of the leading banks offering Home Loans under the PMAY. The interest rates on offer on this product are the same as that for the regular Home Loan. However, the PMAY loans have an interest subsidy component. The scheme envisages the grant of an upfront interest subsidy that is credited to the loan account of the borrower. Therefore, the borrower has a reduced liability. The EMI changes accordingly.

 Central Bank of India - PMAY Subsidy Table

Central Bank of India calculates Home Loan interest on the daily reducing balance method. It debits the interest amount on the last working day every month. The best mode of Home Loan repayment under such circumstances is the EMI method.

EMI stands for Equated Monthly Instalments and it comprises of two components, i.e., the interest and principal. Thus, regular repayment of the EMI not only ensures the servicing of the interest, but also reduces the principal amount accordingly. Therefore, you experience a decreased interest liability with every succeeding month. However, if the borrower fails to pay the EMI on time, the bank charges penal interest on the overdue amounts, thereby increasing the interest liability of the borrower.

Home Loans sanctioned to agriculturists based on agricultural income have a different method of treatment. The bank charges simple interest on all types of agricultural loans. Secondly, the mode of repayment depends on the harvesting pattern of the crops. Usually, it is on a quarterly, half-yearly, or annual basis. Under such circumstances, the bank stipulates repayment of interest and principal amount accordingly. Therefore, the EMI concept does not come into effect in such loans.