Dear Friends, I have uploaded the 2nd video on SBI Max Gain on my Youtube channel. Here is the link for the same. Please check the video and inform me for your queries, views, comments.
Dear Friends, I have uploaded the 2nd video on SBI Max Gain on my Youtube channel. Here is the link for the same. Please check the video and inform me for your queries, views, comments.
Dear friends, I have uploaded a Video on SBI Max Gain. It’s the very basic video and just the first one on SBI max Gain. based upon your queries, comments, views, I intend to produce more videos to simplify the concept of SBI Max Gain.
Please feel free to share your comments as usual.
Many a times people are not aware of Base rate & Bank Prime Lending Rate while deciding their loan. What do these rates mean? What is it’s impact on their personal loan? Which is good or bad from the two? In this article I’m trying to differentiate between the two rates.
What is Base rate (BR)?
Base rate is the interest rate below which a bank operating in India can not provide loan unless any specific instruction is given by RBI or Govt. of India. It’s the minimum rate of Interest allowed to charge from the borrowers of the bank.
What is Bank Prime Lending Rate (BPLR)?
BPLR is the rate at which, a Bank is willing to lend to it’s most trustworthy, low risk customer. However often banks lend at rates far below this BPLR. For example, most home loan rates are at sub-BPLR levels. Some large corporates also get loans at rates substantially lower than BPLR. For all banks, BR will be much lower than their BPLR.
The Pain of BPLR?
Earlier almost all banks were adopting a common practice of increasing the BPLR when the over all interest rates in the economy are inching up but when the reverse was happening e.g. interest rates were coming down, the reduction in BPLR was either not done at all or not regularly. Instead of reducing the BPLR, the banks were ready to offer a higher spread (difference from BPLR) to it’s new customers (Mainly home loan customers). this was creating a lot of pain & unfair disadvantage to old customers as their loans were running on higher rates due to lower spread from BPLR & thus were not getting the benefit of low interest rates. To control these malpractices of banks, RBI came forward for the rescue of helpless home loan customers.
RBI Introduced Base Rate & made it compulsory for all banks to offer all new loans to be linked to Base Rate from 1st July 2010. Also to save old customers, the conversion from BPLR to Base Rate was allowed free of cost. RBI gave free hand to each bank to calculate & declare it’s own BR but it was a more transparent number than BPLR.
How often can a bank change its BR?
A bank can change its BR every quarter, and also during the quarter.
What does it mean for corporate borrowers?
Under the BPLR system, large corporates who enjoyed rates as low as 4-6% will be hit since from July 1 no bank can lend at rates below BR. However, there is a chance that some corporates, with low-risk profile, would get a lower rate under the new system as under the BR regime banks are expected to take into consideration the risk levels of the borrower.
What does it mean for retail customers?
The impact could be an increase or decrease of 25 basis points (100 basis points = 1%) compared to the current rate of interest they are enjoying. However, existing customers will not be impacted by this change.
What does it mean for the banks?
Banks’ net interest margin will be unaffected.
Can a customer move from the BPLR to BR regime before the expiry of the current BPLR-linked loan tenure?
Yes, RBI has mandated clearly that all old customers should be given the choice to move/switch to BR linking of their loans if they so desire. For customers, a shift before the expiry of the tenure of the existing loan will make sense only if the BR-linked interest rate is lower than the BPLR-linked rate.
Although here is one interesting thing, housing finance companies like HDFC, LICHFC, Indiabulls, Dewan etc. are still charging BPLR linked rates as these are governed by National Housing Bank & not by RBI. So in case you have taken your loan from one such housing finance company & not from a bank, this Base rate thing is not applicable to you.
So what are your views on this article? Please feel free to share your views, queries in the comment section below.
First of all, I thank to Mr. VKSNathan who gave the idea for this article. (Click here to know the background). Now a days many home loan borrowers are opting a particular type of home loan from SBI which is called Max Gain. In this home loan, an Overdraft (OD) account is assigned to the customer’s home loan & any amount parked by customer is treated as loan repayment for the purpose of interest calculation, for the days, the amount stays there in that OD account. As on date following banks are offering similar types of home loan to their customers.
SBI, IDBI, CITI, HSBC & Standard Chartered. Punjab National Bank can also be added in this list but it’s offering a combo of normal loan + OD. In this article, we are going to discuss only SBI Max Gain as in OD linked home loan, for the fact that the maximum business is with SBI & the most discussed topic on JI forum is also related to SBI Max Gain (click here).
What is an Overdraft account?
Before we discuss Max Gain, first understand, what is an OD account? All of us are well aware of functioning of an ordinary saving bank (SB) account. Here account operates between zero to positive & positive to zero. As we deposit our money, it’s used by bank & we get interest on our money from bank. In case of an OD account, bank first ask for a security & then assign a credit limit on the basis of the market value of that security. This security may be Fixed Deposits, Insurance Policies, National Saving Certificates, Shares, Mutual Fund units, house/commercial property etc. Now when we are using this assigned credit limit, the amount is going from zero to negative zone & when we are repaying, it’s coming from negative to zero. As we are using bank’s money in this case, the interest ‘ll be paid by us to bank. That’s how an OD account works.
So what is the correlation between Max Gain home loan & Over Draft account?
For Max Gain borrowers, SBI opens an Over Draft account where the Credit limit as discussed above is equal to the loan value assigned to the borrower. Here underlying security is the home you have purchased or constructed from that loan amount. Now as & when you are parking any surplus amount into this OD accout, the parked amount is treated as payment towards loan (effectively you are bringing down your loan liability from negative towards zero position) and thus the interest ‘ll be charged only on the difference amount i.e. total loan amount – parked surplus amount.
What is the primary benefit of Max Gain?
Well the primary benefit of MG is to keep your liquidity intact & still bringing down your interest outgo. To understand it better, please imagine a situation you are running a home loan of 30L Rs. & now you do have 2L Rs. with you to prepay. In normal home loan, your 2L Rs. ‘ll be accepted by bank & adjusted towards home loan & your amount is gone forever so no liquidity for you of that 2L Rs. amount. On the other hand, if you are MG customer, simply park those 2L Rs. in your MG account & your interest outgo ‘ll be lower from that month itself till those 2L Rs. or a part of it is there as surplus in MG account.
What is Drawing Power ?
Drawing Power is nothing but your as on date actual outstanding loan amount. Before final disbursal or start of loan repayment, it’s your sanctioned loan amount. Once your EMI starts, it’s your as on date actual outstanding loan amount. Please check Image below, Drawing Power here is 1867053 Rs. as on date. (Click here to understand it better)
What is Available balance?
Before final disbursal, it’s the sum of undisbursed amount + parked surplus & post final disbursal, it’s your parked surplus amount which is available to withdraw. Please check Image below, Available Balance here is 1084177.72 Rs. as on date. (Click here to understand it better)
What is Book balance?
It’s the adjusted loan amount arrived after deducting the Available Balance amount from Drawing Power. In your account statements it’s shown with a negative sign. Please check Image below, Book Balance here is – 782875.28 Rs. as on date. (Click here to understand it better)
Is there any extra interest for Max Gain?
No, the interest for home loan is same in SBI be it for normal home loan or for Max Gain.
I’m an existing SBI home loan customer. Can I convert my old term loan to Max Gain?
Yes, you can. Please contact your loan serving branch or RACPC for the required paperwork to be done. This may be an outdated info so please do check with your loan serving branch for current day rules on conversion.
I have taken the Max Gain for an Under Construction Property. Can I park surplus amount to save on interest outgo?
The answer is yes & no both. Yes you can park your surplus during under construction phase but do remember SBI is disbursing partially at this juncture & in case due to any emergency you want to liquidate your surplus, SBI ‘ll not allow the same. So park only that much surplus, you feel you ‘ll not need even in an extreme emergency.
If I’m parking some money on monthly basis or in lump sum, will my loan term come down or EMI go down?
No. Neither your EMI ‘ll come down nor your loan term. The only saving is in terms of interest outgo. To understand it better, Let’s assume a test case of loan amount 30L Rs. @ 10% Rate of Interest for 20Y term. The normal EMI for these nos. ‘ll be 28951 Rs. The break up of your EMI for first month ‘ll be 25000 Rs. interest & 3951 Rs. for principal repayment.
Now if you do have 2L Rs. surplus in the very first month & prepay the same as below –
Case – 1 Normal home loan
Your 2L Rs. is gone & outstanding loan amount ‘ll come to 2796049 & interest outgo ‘ll still be 25000 Rs. but the no. of months ‘ll come down from original 240 to 198 months.
Case – 2 Max Gain home loan
Your 2L Rs. are parked in that OD account & the interest for the very first month ‘ll be calculated on 28L Rs. & thus it ‘ll be 23334 & thus there‘ll be an interest saving of 1667 Rs. which‘ll remain available in your OD account as surplus along with your parked surplus 2L Rs. so for next month, the parked surplus amount ‘ll be 201667 Rs.
Please do note in case 2 above, Your loan term is still 240 months but the saving of interest ‘ll keep on increasing on mly basis from the parked surplus & of course the liquidity of those 2L Rs. is there.
How can I calculate my saving in Max Gain?
To know your actual saving, first of all please demand a loan amortization schedule from your loan serving branch & now for each month compare the scheduled interest outgo as per your loan amort. schedule & the actual interest outgo.
What should I do to maximize the savings in Max Gain?
If you are paying your EMIs from SBI’s SB account, you can maximize your benefits. How? here it goes. Say 15th is the EMi date on which EMi amount is debited from your SB acct. Now in a normal home loan, people ‘ll keep at least 2-3 months’ EMI amount as buffer in SB account. but in case of Max Gain, you do not need to keep buffer in SB account. Keep this buffer amount also in your MG account along with your routine surplus amount. now use the power of netbanking of SBI for your own good & create a schedule transaction of your EMI amount 28951 Rs. (in the above example) to be transferred on 13th of every month from MG account to SB account. At a time you can schedule for next 12 months by using standard instruction. So it’s technology that’s helping you.
I can transfer money to MG account from my existing netbanking enabled SB account but reverse is not happening. why?
The answer lies in the fact that Netbanking transaction rights on your MG account is not enabled yet by your loan serving branch. if final disbursal is done, you can apply for transaction rights. if only partial disbursement has been done, sorry, you can’t apply for transaction rights till final disbursal.
Is it mandatory to purchase property insurance & life insurance along with Max Gain?
Having property insurance as well as sufficient life insurance is compulsory but purchasing the same from SBI’s sister cos. like SBI General ins. & SBI Life ins. is not at all mandatory. If you feel that policies are being cross sold to you to exploit your position (home loan seeker), please contact the AGM of your local RACPC where your loan application is under processing.
Is SBI charging higher processing fee for Max Gain?
No, as on date there is no differentiation in fee for term loan & Max Gain but SBI reserves the rights to charge different fee.
Can I claim section 80C principal repayment benefit for the surplus amount parked in Max Gain?
The answer is NO. Only the regular principal repaid by you from your EMI as part of your loan amortization schedule is available for tax benefit under section 80C. the parked surplus amount is liquid money & you can withdraw it any time, hence it’s not considered as actual repayment of loan & thus not eligible for tax benefit.
Can I avail cheque book & ATM card for my Max Gain account?
Yes, as & when you‘ll demand these, SBI ‘ll offer you the same. In case you are already holding an SBI SB acct. linked ATM card, you have the option to link your MG acct. also with this existing ATM card.
Can I enroll my MF SIPs in Max Gain?
Yes but do note, there should be a surplus balance i.e. available balance on the date of SIP, else your ECS or SI mandate ‘ll bounce.
Can i pay for my utility bills, credit card payments, online shopping from Max Gain?
Yes, you can do all this & more. In fact it’s in your best interest that you treat your MG account as your primary money parking account & route all your transactions through it so that money is lying there for maximum possible time & thus helping you to bring down your interest outgo.
I used my MG account ATM card to withdraw cash from other bank’s ATM & I was charged the money very first time in the month. Why?
The reason is, as per RBI’s circular 5 transactions on other banks’ ATM are free only for SB account & in this case, you forget the point that your MG account is not SB account. it’s an overdraft account.
For an imaginary situation, my loan amount is 30L Rs. & parked surplus amount is also 30L Rs. Does it mean, my loan is closed & I can claim my property papers from SBI?
No, your loan is not closed. Only interest outgo ‘ll become zero & EMI ‘ll remain continue as it is. Yes the interest part of your EMI ‘ll keep on accumulating in your MG account. If you want to close your loan at this point, you w’d have to inform SBI in written & now SBI ‘ll adjust your parked surplus amount towards the outstanding loan amount. you ‘ll lose the liquidity of your money but loan ‘ll be over & now you can get your property papers back.
How can I transfer my loan from other banks to SBI Max Gain?
For loan transfer, first of all contact your existing lender & ask for following things.
1. Loan Account statement from day one.
2. List of Documents, which were submitted by you at the time of availing original loan. In day to day language of bankers, it’s called LOD.
3. As on date outstanding loan balance with applicable interest, penalty & any other fee to close the loan.
Now contact, the nearest SBI Branch (if you do have an existing SB account with SBI, it’s advisable to contact there for ease of operation). Inform in that branch that you want to transfer your loan from existing bank to SBI Max Gain. fill the application form, submit the necessary papers & SBI’s RACPC ‘ll do the back gorund job.
Once SBI is ready to accept the transfer, it ‘ll issue you a sanction letter of the loan amount & ‘ll ask you to go for loan related agreement documentation work with SBI. If you are not having property insurance, SBI may ask to purchase one. Same ‘ll be the case for your life insurance. Once legal documentation is over, the cheque of the loan balance ‘ll be issued directly into the name of the bank in question. After the amount is credited to your existing bank, within next 20-30 days, you ‘ll get the original documents submitted by you, from the existing bank. Now you w’d have to submit these documents to SBI. In some states like Gujarat, Maharashtra, Karnataka, SBI may ask to go for registration of mortgage deed on your property in the office where your property was originally registered in your name.
Comparison of SBI Max Gain to Normal Home loan
SBI Max Gain
Normal Home Loan
Liquidity of your part prepayments is there
No Liquidity. Money is gone for ever, once you prepay.
A bit complex to understand
Easy to understand
For people who can generate regular surplus amounts
For people who can only manage regular EMIs
Click here to know the real life example of Mr. Sudhir S for SBI Max Gain
Do you feel, this article was able to answer your all queries related to SBI Max Gain? Was this article helpful for you to understand the overall concept of SBI Max Gain home loan? Please feel free to ask for more help.
Q. I have a question regarding Payment of Home Loan vs. Investment. Should a person start a SIP for his retirement or should he plan to prepay his Home Loan first. Say if a person is having a Home loan of 30L and paying EMI of 30K and having a SIP of 10K is good option or having EMI of 40K is a good option, or having a 10K of reoccurring deposit for one year and with this amount prepay his loan after each year.
Dear Sachin, in my view, Increase your EMI to 35K & invest 5K mly through SIPs for your retirement. The extra amount in EMI ‘ll help to close your loan early & the SIPs ‘ll give the power of compounding to your retirement portfolio.
My name is Ritesh kumar and I requested for my CIBIL repot which I get and I found a “Written OFF” from Standard Charted Bank Credit Card for the amount of Rs 994/-.
From 2005 to 2006 I was using a SCB Manhattan Credit card then I stop using the Card around 2006 last Q, but I continually receiving statement from the bank and every time there are some charge add and till Feb. 2006 the amount where gone up to 3000/- then I write a mail to SCB customer care and get all the settlement (I have a mail from the bank). But my card was not officially close, but also, I never use that card again.
So can you please advice me what should I do now, I wanted to remove “Written OFF” from the CIBIL for me.
Dear Ritesh, You have following options.
1. Based upon your settlement of dues done in 2006, write to your Credit Card provider (SCB) & ask to remove your name for Written off from Cibil Report.
2. Wait for the 1 above to happen for at least 1 month or so. If nothing is happening, contact Banking Ombudsman in your area. Click here for more details on Banking ombudsman.
3. Based upon your settlement of dues done in 2006, you may apply for loan (CAR, Home or Personal). With your application attach the copy of settlement documents.