Retail Banking

CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDY : 11

​Formula to Calculate the Periodic Payments under RML

The formula to calculate the periodic payments, as available in the website of NHB, is as under:
Installment Amount = (PV*LTVR*I)/ ((1+I)n-1)
Where, PV = Property Value;
LTVR = LTV Ratio;
n = No. of Installment Payments;
I = the value of I will depend on Disbursement Frequency selected.
A Hypothetical Example
Value of the property Rs. 50,00,000 Rs 50,00,000
Loan Amount 80% 90%
Loan Tenor 15 years 15 years
Rate of interest 10% 10.50%
Monthly installment Rs. 9651. Rs 10,368
Quarterly installment Rs. 29,414. Rs 31,638
Yearly installment Rs. 1,25, 895 Rs 1,36,116

Sinking Fund
The sinking fund factor is the amount that accumulates to Re. 1 if invested at specified rate of interest for certain number of years.
​It can be obtained from Valuation Tables.
The factor for redemption of Re 1 at the end of 25 years @ 5% compound interest is 0.021 from the table (see Appendix given in book).
Thus the sinking fund for redeeming original capital of Rs. 15 lacs will be 15,00,000 x 0.021 = 315000.

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