Andhra Bank 
Home Loan Interest Rates

Andhra Bank is a South India based nationalised bank having a significant number of branches in the states of Andhra Pradesh, Telangana, and Tamil Nadu. The bank was established by a famous freedom fighter and visionary, Dr. Bhogaraju Pattabhi Sitaramayya in 1923. From its humble beginnings in 1923, Andhra Bank has grown in strength to have more than 2900 branches all over India. As on date, all Andhra Bank branches are under the Core Banking Solution (CBS) platform. Apart from its footprint all over India, Andhra Bank has a representative office in the UAE and the US. According to the latest announcement on bank mergers by the Indian Government, Andhra Bank and Corporation Bank will amalgamate with Union Bank of India.

Andhra Bank has an extensive rural presence in the southern states of Telangana and Andhra Pradesh. The bank offers an array of exciting loan and deposit products to suit the requirements of its clientele. One of the favourite loan products offered by Andhra Bank is the Home Loan. Andhra Bank has Home Loan products to meet all the needs of housing. There are exclusive products for purchasing a plot of land and constructing a house thereon. Andhra Bank provides loans for the purchase of new or second-hand flats/apartments and houses. The bank also caters to requirements like home improvement or extensions. Balance transfer facility is also available with Andhra Bank. Andhra Bank, being a nationalised bank, offers Home Loans at attractive rates of interest.

The Reserve Bank of India (RBI) has urged all banks to switch over to the repo rate-linked interest rate structure before October 01, 2019. Banks like Andhra Bank have announced that they will be launching unique loan products linked to the repo rates. However, as on date, Andhra Bank has not come up with such a specific product. As per RBI directives, the banks have time up to October 01, 2019.

Andhra Bank links its Home Loan interest rates and other loan interest rates to the MCLR. The MCLR concept is in force from April 01, 2016. The MCLR of Andhra Bank is now effective from 16.09.2019.

Andhra Bank Home Loans are linked to the one-year MCLR. The rates change whenever the bank alters the MCLR. The MCLR depends on various external and internal factors.

The primary components that decide the MCLR of the bank are as follows:

• The marginal cost of funds: This rate depends on the market rate. It is the rate at which the bank can attract deposits for incremental periods. The two components that make up this element are the 'Return on Net Worth' and the 'Marginal Cost on Borrowings'. Therefore, the bank's performance plays a vital role in deciding this aspect of the MCLR.
• Tenor premium: This factor depends on the loan tenure and is not borrower specific. It affects all the loan products of the bank.
• Operating cost: It refers to the cost of raising funds for the bank
• Negative carry because of CRR: Banks have to maintain CRR at a specific percentage of their time and deposit liabilities. These funds lie blocked with the RBI. Hence, there is a negative carry involved in the CRR. This factor plays a crucial role in deciding the MCLR.

All these concepts are technical. RBI has observed that the benefit of the market rate fluctuations does not reach the customers on time. Therefore, it has come with a direct external factor, namely the repo rate. The repo rate is the rate at which the RBI lends to banks. It has directed the banks to link their interest rates to the repo rate with immediate effect. The Repo-linked lending rate system works on a comparatively simple formula.

Following three factors are responsible for the fixation of this category of lending rate:

• Repo rate: The repo rate is an external factor controlled by the RBI. It announces the rates from time to time.
• Net interest margin: The banks take an average of net interest margin of the last ten years. This rate is added to the repo rate by rounding it off to nearest five basis points.
• The credit rating of the borrower: The better the credit history of the borrower, the more advantageous it is for them.

Before the introduction of the MCLR concept in April 2016, Andhra Bank was following the Base Rate-linked interest calculation. The housing loan is a long term asset for the bank. Hence, some accounts have origin before the introduction of the Base rate concept, as well. The BPLR (Benchmark Prime Lending Rate) was the name of the functionality. As Andhra Bank might be having many loans linked to the BPLR, the bank revises it at regular intervals.

• The effective Base Rate of Andhra Bank is 9.45% w.e.f. 16.09.2019
• The effective BPLR of Andhra Bank is 13.85% w.e.f. 16.09.2019

Customers have the option to switch from the existing Base Rate or BPLR to the MCLR at any time on payment of a conversion fee. The MCLR is a floating rate. Hence, the rate of interest on Andhra Bank Home Loans changes every time the bank revises its MCLR. To make it simple, all banks reset the loan rates at fixed intervals. Hence, the benefit does not entirely pass on to the customer. This factor is the premier reason why the RBI came up with an externally-based lending rate, also referred to as RLLR.

• Andhra Bank links its Home Loan interest rates to the one-year MCLR rates. Therefore, every change in the MCLR will bring about a difference in the interest rate for existing and new loans. As it is a floating rate, it will affect the EMI, as well. Thus, the EMI could increase or decrease with every change in the interest rate.
• Similar to other banks, Andhra Bank prefers to extend/reduce the repayment tenure instead of increasing/decreasing the EMI.
• The rate of interest on Home Loans in Andhra Bank depends on the amount of loan and the gender of the borrower.
• Loan amounts above 75 Lakhs have a higher rate of interest
• Women borrowers get a benefit of 0.05% in the interest rates as compared to their male counterparts. This concession is also available when the woman is a joint applicant to the housing loan provided the property is in her name, as well.
• Other than Home Loans for repairs and renovations, all the types of Home Loans have a similar interest rate structure.

Andhra Bank calculates the Home Loan interest on a daily reducing balance basis. Regular payment of equated monthly instalment (EMI) can help in reducing the interest burden. Andhra Bank permits part prepayments in bulk. The bank also allows foreclosure of Home Loans. As per RBI guidelines, the bank does not charge any prepayment or foreclosure penalty from individual customers who opt for floating interest rates.

Andhra Bank is a frontrunner in Pradhan mantra Awas Yojana (PMAY) loans in the states of Andhra Pradesh and Telangana. The rates of interest on these PMAY loans are the same as that of the regular Home Loans. However, there is a distinction because of the involvement of an upfront subsidy. The upfront subsidy works uniquely.

How PMAY subsidy works?

The bank sanctions the Home Loan under PMAY after considering the eligibility criteria, requirement, provision of margin, and so on. On approving the loan, the bank can lodge the claim for an upfront subsidy with the department. The subsidy depends on the category to which the borrower belongs. Accordingly, on receipt of the subsidy, the bank credits the same upfront to the loan account of the borrower. Thus, the borrower does not have to pay the EMI on the subsidy portion. This reduction in the EMI proves beneficial to the customer. However, the bank will charge interest at their contracted rate.

PMAY subsidy table