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When will be the reset date decided for the loan? How will the reset impact the current rate of interest (ROI) in case the MCLR increases or decreases?

The reset period and date will be decided on the date of first disbursement.

 

In case of increase in MCLR on the reset date, the ROI will increase which in turn will impact the EMI/tenor of the loan depending on the option exercised by the borrower.

 

In case of decrease in MCLR on the reset date, the ROI will decrease which in turn will impact the EMI/tenor of the loan depending on the option exercised by the borrower.

 

Illustration: Consider a scenario where first disbursement of the loan is done on April 15, 2016 under I-MCRL-1Y benchmark rate, with the I-MCRL-1Y being 9.20% p.a. with a spread/margin of 20 basis points (bps). In such a case the effective rate would be 9.40% p.a.

In the above scenario, the effective rate of 9.40% p.a. would remain constant till the next reset date i.e April 1, 2017. On April 1, 2017, the loans would be reset with the applicable I-MCLR-1Y rate as on that date.

 

It may be mentioned that the spread/margin of the loan would continue to remain the same. e.g. If the I-MCLR-1Y is 9.10% p.a. as on April 1st 2017, then revised rate applicable for the loan would be 9.10% + 0.20% = 9.30% p.a. w.e.f. April 1, 2017.