### SBI Maxgain – OD a/c interest calculation

POSTED BY ON May 3, 2013 3:07 pm COMMENTS (20)

This is the details I received from the manager of the SBI branch who processed my SBI Maxgain loan.

The interest for the OD account is calculated and debited on 30th of every month and the EMI amount is credited on the pre-agreed date (say 7th of every month).

In my OD account statement, the negative balance in my OD account (outstanding principal) is further reduced by the interest debited as on 30th. And on 7th of every month, after the EMI credit, the balance in my OD account increases.

The outstanding amount for those 7 days is the principal outstanding as on 30th of the previous month + the interest debited on the 30th. Hence for those 7 days I will be paying interest on this outstanding balance, which is not only my outstanding principal amount but also the interest debited on 30th.

For example, for simplicity, if my outstanding principal is Rs.40 lakhs as on April 30, my EMI is Rs.40,000 out of which Rs.34,000 is interest and Rs.6000 is principal.

My OD balance as on April 29th: -40,00,000
Interest for the month (debit): 34,000
My OD balance as on April 30th: -40,34,000
Loan EMI credited on May 7th : 40,000
My OD balance as on May 7th: -39,94,000

Now the interest calculated (on per day basis) and debited on May 31st will consider Rs.39,94,000 as outstanding for 24 days and Rs.40,34,000 as outstanding for 7 days.

1. Is this calculation correct? Why am I paying interest on interest for 7 days? Am I missing something here?

2. The manager says this calculation from SBI is very transparent and SBI follows the methods that are most beneficial to the customer and other banks do much worse.

## 20 replies on this article “SBI Maxgain – OD a/c interest calculation”

1. Anoop says:

Hi Ashal,

If my final disbursement date is Dec 3rd 2016 and EMI date is 10th of every month, in this case will EMI start from Dec 10th 2016 or Jan 10th 2017 ?. I read that the EMI will start from following month of final disbursement ?

If EMI start from 10th Jan 2017, interest for 28 days. correct ? (from dec 4th to dec 31)

2. ashok says:

This is the details I received from the manager of the SBI branch who processed my SBI Maxgain loan.

The interest for the OD account is calculated and debited on 30th of every month and the EMI amount is credited on the pre-agreed date (15th of every month).

In my OD account statement, the negative balance in my OD account (outstanding principal) is further reduced by the interest debited as on 30th. And on 7th of every month, after the EMI credit, the balance in my OD account increases.

The outstanding amount for those 7 days is the principal outstanding as on 30th of the previous month + the interest debited on the 30th. Hence for those 7 days I will be paying interest on this outstanding balance, which is not only my outstanding principal amount but also the interest debited on 30th.

For example, for simplicity, if my outstanding principal is Rs.60 lakhs as on April 30, my EMI is Rs.57,505 out of which Rs.48882 is interest and Rs.8623 is principal.

My OD balance as on April 29th: -60,00,000
Interest for the month (debit): 48,882
My OD balance as on April 30th: -60,48,882
Loan EMI credited on May 15th : 57,505
My OD balance as on May 7th: -59,91,377

Now the interest calculated (on per day basis) and debited on May 31st will consider Rs.59,91,377 as outstanding for 24 days and Rs.60,48,882 as outstanding for 15 days.

1. Is this calculation correct? Why am I paying interest on interest for 15 days? Am I missing something here?

2. The manager says you have to pay interest on your OD balance that’s why on every last day of month they deduct the interest amount from my surplus amount in RACP A/c & again 15th of every month they deduct the complete emi of 57,505 amount from my saving account.

My EMI is 57505/month then why emi + 39500 approximate amount is also deducted from my racp account.
the manager was repeating same answer of interest for OD amount.

I’m paying my EMI on date and parked surplus amount to my max-gain amount so my interest amount is reduced but here I’m finding I’m paying EMI as well as paying Interest of 40,000/month on amount parked as surplus.

1. Bharat says:

I am also facing the same issue.
Why would I pay the interest for 10 days

2. Abishek says:

Same problem for me too.

3. Anjali Umap says:

Hi,

This is Mrs. Anjali Umap. Many times I see posts related to MG and gets lot of knowledge. (My MG a/c is commenced from FeB 12) Earlier I used to keep surplus amount in OD and as and when required I used to withdraw it. Many times surplus amount was more than my EMI. My EMI date is 10th of every month. so I used to transfer RS. 33500/- From MG to my SB a/c every 9th date so that EMI gets deducted from SB and by ECS transfers to OD on 10th . I used this practice many times. But on 26th July I had withdrawn all surplus amount (keeping ABalance around rs. 275/-) . Like that I transferred Rs. 33500/- .on 4th Aug. But statement was not showing Rs. 33500/- in AB. Still I had given schedule to transfer Rs. 33500/- from MG to my SB account.
On 9th nothing was transferred to my saving and I saw penalty charges rs. 25 deducted from OD. I called up Branch person. She told Rs. 33500/- was considered (might be ) as EMI so I need not to worry.

Then on 2nd Sept. Rs. 33500/- directly debited from my SB account. Then again I went to Branch. They told me to go to RACPC. RACPC told Aug EMI is (might be) declined so I need to keep Rs. 33500/ in SB amount on 10th day of Sept. But I couldn’t manage Rs. 33500/- ( I have already paid Rs. 33500/- in Aug and Sept)
Now I wanted to know what is the solution?
This can be happen with other viewers (MG account holders)also . What will you suggest?

Thanks,
Anjali Umap

1. Thanks for your comment Anjali Umap

1. Hrishikesh says:

Hi, can you pls share your reply to Anjali Umap? I have also faced same situation.

2. Debasish Roy says:

Hi Manish,
Please share the solution what you have given to Anjali Umap.
I am also facing same problem.

4. jits says:

Hi,

I have taken home loan of 59.65 lakh under Maxgain, for 25 years @ 9.8% on may 2015.
with a morotorium period of 6 months, my EMI, which came on the paper that we signed was 54010 rs, which was correct. However when we went to bankk to submit our ECS letter, to our shock, we saw, the emi in system is coming to be 55677 rs.
When we contacted the loan branch manager, he said he will send this to TCS people to correct it. However despite over a month already passed, we are getting the same reply from the manager, that this is the EMI. and he says that all the EMI calculators are wrong, only this is correct.
So i want to know from you, as to whom should i approach for resolution of this issue, as it has alraedy started giving me sleep less nights. The branch people are not helping at all.

5. sandy.n says:

Hello Ashal,

Is there a thumb rule as in what could be minimum amount to maintain to avoid interest over interest situation. seems like I am currently facing the same.

Below is my data
Account Number XXX
Description SBI H L MAXGAIN AUG12
Name Mr. XXX
Book Balance -43,24,621.09
Available Balance 35,404.91
Limit 43,60,026.00
Uncleared balance 0.00
Drawing Power 43,60,026.00

6. Dear Shankar, the interest was due on you for 16 days. As there was no money from your side, in form of surplus amount in Max Gain, the same interest added up into your book balance & now from 1st May till 6th May, you w’d have to pay interest on the new book balance. As simple as that.

In case of normal home loan, the interest is calculated between the 2 EMI dates, hence, such issues do not arise. Whereas in case of Max Gain interest calculated & charged on the on the last day of the month, which you did not paid. This is the reason you are paying interest over interest.

Sprite……….. Clear hai…………. 🙂

Thanks

Ashal

7. shankaranand says:

Dear Ashal,

I am not sure why you have mentioned non-payment of interest. My EMI is scheduled for 7th only, right?

Why interest retrieval and EMI credit are treated as two separate events on two separate dates by SBI? Is this done by other banks / in other SBI loans too?

Assuming I don’t have any extra money at all but I don’t default on any of my EMIs, why should I be made to pay interest on interest every month? Why should I pay something in advance to avoid interest on interest?

Sorry if I am being thickheaded. Kindly bear with me.

Thanks,
Shankar

8. Dear Shankaranand, SBI is not cheating you or anyother customer. For that matter – equalize your case with an eMI bounce case. As the EMI was not paid, ‘ll you pay interest only on the basic lona or loan + outstanding interest?

You are focussing too much on dates & missing the basic thing of non payment of interest by you. As you did not pay it, you are bound to pay interest on interest. As simple as that.

Thanks

Ashal

9. shankaranand says:

Dear Ashal,

Sorry if you felt that I was trying to argue with you or offend you in anyway.

I was trying to state things clearly so that people who refer to these questions and answers in future understand it fully. I want this Q&A to be useful not only for me but also to people who refer this in future, just as I benefited a lot from reading a lot of older posts in this forum. Thanks a ton to you and others who have patiently replied to 100s of queries.

Yes, I understood that the interest is charged on book balance only.

The problem is that the book balance is debited on 30th of every month and credited on the EMI date. I understand that it is not only for me but it is the same for everyone. Though we may try to offset the interest debit by parking some money, the interest on this money till the EMI credit is lost nevertheless.

I thought SBI would not do something to cheat the customers and hence the doubt. And to understand the system better with other banks too.

Apologies once again.

I will definitely try to ask this to the SBI people. If anyone has an explanation for this, please add here.

Thanks,
Shankar

10. Dear Shankaranand, please try to put your arguement with SBI people & I’ll be happy to know the outcome.

If your own understanding is that EMI date should be 1st, so be it. I tried to help you & you missed the point that interest is charged on the book balance not on drawing power. For you, the book balance was more due to interest debit & hence you w’d have to pay interest on interest. That’s it. I’m in no mood of arguement with you or anybody.

Thanks

Ashal

11. shankaranand says:

(contd…)

Dear Ashal,

In the above example, even if I had transferred Rs.30,000 in the OD a/c on Apr 30th as you said, I would expect it to earn me Rs.83 in 10 days till my EMI date. In this case it wouldn’t happen since Rs.30,000 is debited as interest on April 30th itself.

Thanks,
Shankar

12. shankaranand says:

Dear Ashal,

Yes I understand that had I parked the amount equal to 16 days interest, it would have nullified the effect. And yes, my book balance only changed. My Drawing Power still shows the sanctioned amount as my first EMI is scheduled for tomorrow only.

For simplicity and arguments sake, lets assume that one does not currently have surplus money to park in the OD a/c.

Why should we pay interest on interest for the period between 30th of every month and our EMI date? Hence EMI date becomes important here?

Does SBI do this debiting on 30th and crediting on EMI date for every type of loan or Maxgain only?

If the answer is Maxgain only, then are normal loans better than Maxgain IF one does not have or can manage surplus funds to park in the OD a/c?

Does any other bank do this?

Simply put, when I pay my monthly EMI, I want to pay interest for the outstanding principal and pay back a portion of the principal. I do not want to pay interest on the monthly interest component even for a period 7 or 10 days.

Let’s say the interest component for this month is Rs.30,000 and my EMI is scheduled for 10th of every month. In my interest component for next month, along with the interest on the outstanding principal, I would be charged Rs.83 extra as interest on this interest component of Rs.30,000 for 10 days considering 10.1% ROI.

If my EMI was scheduled for 1st of every month, i would be charged only Rs.8.3 extra.

Is this how things are supposed to work normally? Is this the case with other banks too? Kindly throw some light on this.

Thanks,
Shankar

13. Dear Shankar, thanks for the clarification. Actually had you parked the amount equal to 16 days interest in your Max Gain account on or before 30th april, the things w’d be smooth for you. Now, from this month on wards, as you have already parked the surplus amount, the benefit of same ‘ll be there & you need not to worry for EMI date.

I assume, your Drawing power remained same but book balance changed on 30th April due to this 16 day interest debit.

thanks

Ashal

14. shankaranand says:

Dear Ashal,

My loan was disbursed on April 14th. My first EMI is scheduled for tomorrow (7th of every month). It is a takeover from AXIS bank. I have deposited some surplus (Rs.2L) in my OD account.

I have seen that link and understood about SBI Maxgain fully. Thanks to you and this forum that I moved to SBI Maxgain.

I saw in my bank statement that pro-rated interest amount for 16 days was deducted from my OD account on Apr 30th. If you for a minute leave aside the surplus parked in the account, my current outstanding is more than my loan amount (loan amount + 16 days interest).

I called up the manager and he explained that on 30th of every month the interest amount will be debited and on the day of the EMI, the EMI amount will be credited. Hence the net outstanding will be fine.

My doubt is that till the day of the EMI, my outstanding amount will include the previous month’s interest too. And this will in turn affect the interest calculated for the current month.

Also in this case, the date of my EMI makes a lot of difference since the interest amount is anyway debited on the 30th. And the outstanding amount will be higher till the date of my EMI. Hence I should move my EMI date from 7th to 1st.

I was under the assumption that the date of EMI should not matter. But looks like I was wrong.

Do you have an SBI Maxgain loan? Does this happen with you also? Or am I missing something?

Thanks,
Shankar

15. Dear Shankaranand, when your loan was disbursed & from whcih month, you started EMI? have you parked any surplus in your Max Gain account till date or not?