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How will the benchmark reset impact the current Rate of Interest (ROI) in case the Repo rate increases or decreases?

On the reset date, if the applicable Repo rate has increased, the effective ROI of the loan account will increase which in turn will impact the EMI/tenure of the loan.

In case of decrease in Repo Rate, the ROI will decrease which in turn will impact the tenure of the loan.

Illustration: Consider a scenario where first disbursement of the loan is done on Oct 15, 2019 under RBI Repo linked benchmark rate, with the RBI Repo Rate being 5.15% per annum (as on Oct 14, 2019) with a spread/margin of 400 basis points (bps). In such a case the effective rate would be 9.15% per annum.

In the above scenario, the effective rate of 9.15% per annum would remain constant till the next reset date i.e. Jan 01, 2020. On Jan 01, 2020, the loans would be reset with the applicable RBI Repo rate as on Dec 31, 2019.