Indian Overseas Bank Home Loan Interest Rates

Repo Rate Linked Lending Rates - RLLR

Indian Overseas Bank has announced the linking of its retail products and MSME loans with the repo rates with effect from October 01, 2019. The retail products include Home Loans, education loans and personal loans.

RLLR Concept

The RBI has brought the repo rate down to 5.40%. It has notified all banks to link all retail loan products to an external benchmark rate.

The rate could be any one of the following:

• Repo rate - RBI controls the repo rate
• 3/6 months Treasury bill rate - FBIL publishes these rates based on the repo rate and other market-rate fluctuations daily.
• Any benchmark rate published by Financial Benchmarks Pvt Ltd (FBIL)

Indian Overseas Bank has decided to link the retail loans to the repo rate as it is comparatively less volatile.

The RLLR comprises of the following components:

• Repo rate - Controlled by RBI
• The average net interest margin for the last ten years (differ from one bank to another)

The bank can load a premium over the RLLR that could consider various factors such as credit rating of a borrower, LTV ratio, and so on.

Indian Overseas Bank has not declared their RLLR as on date.

Marginal Cost of Funds based Lending Rate - MCLR

The RLLR will come into effect from October 01, 2019. The bank follows the MCLR rate structure today. This MCLR concept is in force since April 01, 2016. All loans sanctioned after April 01, 2016 are linked to the MCLR of the bank. The MCLT itself is a market-related interest rate that depends on various factors.

• The marginal cost of funds - Marginal cost of borrowing + return on the net worth of the bank
• Tenor Premium - Not borrower or loan-specific, but similar for all loans
• Operating cost - Cost incurred by the bank to raise money for the loan
• Negative carry on CRR

Indian Overseas Bank revises its MCLR almost every month. The latest revision of the MCLR of the bank was on August 10, 2019.

Indian Overseas Bank links its Home Loan interest rate to its 1-year MCLR. The effective rates of interest on its Home Loan products with effect from August 10, 2019, are as follows:

• The MCLR-linked Home Loan interest rate is a floating rate of interest
• The interest spread depends on the amount of the loan and the purpose
• Top-up loans have a higher interest rate when compared to the regular Home Loan interest rate
• The gender of the borrower or the occupation does not have any bearing on the interest
• The same interest rates apply to NRI loans and PMAY loans, as well

Indian Overseas Bank has a dominant presence in Tamil Nadu with more than a 1000 branches located in the state. Hence, it is an active player in PMAY in these areas. The bank follows the Government of India guidelines in the PMAY loans. The rate of interest in PMAY loans is the same as it is for other Home Loans. However, the interest subsidy available in the PMAY accounts differentiates it from the others.

PMAY - Subsidy Effect

PMAY Subsidy depends on various factors:

• Category of the borrower - Depends on annual family income from all sources

• Maximum loan amount eligible for a subsidy

• Rate of subsidy and Maximum amount of subsidy

• PMAY interest subsidy is an upfront subsidy
• On credit to the loan account, the loan liability reduces instantly
• EMI is calculated on the principal loan amount outstanding after deduction of subsidy

Indian Overseas Bank calculates Home Loan interest on the daily reducing balance method. The best mode of repayment of Home Loan is EMI. The borrower can repay the Indian Overseas Bank Home Loan EMI in many ways.

• Set up a standing instruction in your savings or current account with Indian Overseas Bank
• Submit post-dated cheques in advance
• Register for an ECS mandate
• Pay cash into the account
• Use net banking or mobile banking facilities
• Remit funds through NEFT/RTGS/IMPS from other banks