Citibank has come out with a new Home Loan Product, which is linked to an external benchmark. This is in line with RBI appointed Janak Raj Committee’s recommendations last year that all banks should link their loans to an external benchmark. This brings the Home Loan product transparent and the customer would have to be prepared for frequest changes in their EMI tenure or the amount of EMI.
Now let us go through the other salient features of the product.
- The bank’s Home Loan product will be benchmarked to the three month treasury bill rate which is known as Treasury-bill benchmark linked lending rate (TBLR)
- This will be provided by Financial Benchmarks India Private Limited (FBIL) an independent benchmark administrator recognized by RBI.
- Home Loan rates will be reset once in a quarter on the first of March, June, September and December.
- The three month T- bill rate on a specific date of the month will be used as the benchmark. Citibank has mentioned 12th on its website. The current TBLR is 6.25 per cent.
- The spread charged above the benchmark rate will remain constant throughout the loan tenure.
- All customers who are presently on MCLR or base rate will have the option to shift to the TBLR based home loan without any charge.
- It is believed that this will bring more transparency in the home loans
- The problems related to the spread over the MCLR will be solved now.
- Banks would increase the spread to reduce the benefit being passed on to the customers, during MCLR fall will now be resolved and manipulating MCLR would no longer be possible since it is linked to a publicly published rate, dealt with by an external independent entity.
- This will be in line with the global best practices.
However, the borrowers will have to keep a constant watch on the interest rates and keep a track therein since it will be a sort of floating interest rate and should borrow conservatively especially now when rates appear to be headed upward. When interest rates begin to move upward they can keep on rising for two to three years and thereby by 2.5 to 3 percentage points. Here, borrowers should factor in that kind of rise, when they decide on the quantum of loan.