Savings ratio and EMI
How much of a month's income is kept, how much goes to lenders, and how a loan instalment is worked out
Household data as published by RBI on 25 September 2026; loan rules as on 16 October 2026
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: out of every ₹100 a household takes home, how much do you think it keeps? Take a few guesses. Then ask how many people know how their own EMI was calculated. Most will not. This deck covers both.
Two numbers say a lot about a household's month: the share of income it keeps, and the share owed to lenders.
The savings ratio measures the first. EMIs are one regular part of the second. Both are simple divisions, and both depend on what you count.
Trainer notes
Keep the two ideas side by side. A loan instalment is money committed before the month begins; saving is what is left to choose about.
Four terms to know first
Savings ratio
Money saved in a month ÷ income for that month, as a percentage. Say whether income means take-home pay or gross pay.
EMI
Equated monthly instalment: the same amount paid every month, covering that month's interest and part of the loan.
Principal
The amount borrowed and not yet repaid. Interest each month is worked out on this outstanding amount.
Tenure
Months over which the loan is repaid. At the same rate, a longer tenure means a smaller EMI but more interest.
Source for the EMI definition: RBI circular on Key Facts Statement for Loans & Advances, 15 Apr 2024.
Trainer notes
RBI's own definition: an equated periodic instalment repays principal and interest in fixed amounts at regular intervals until the loan is fully repaid; monthly ones are called EMIs. The 'more interest' point holds for the same loan at the same rate.
Working out a savings ratio
ONE HOUSEHOLD'S MONTH
Take-home pay: ₹80,000.
Living costs: ₹52,000. Home loan EMI: ₹16,000.
Put into savings and investments: ₹12,000.
- Savings ratio: ₹12,000 ÷ ₹80,000 = 15%.
- Share going to the EMI: ₹16,000 ÷ ₹80,000 = 20%.
- Living costs: ₹52,000 ÷ ₹80,000 = 65%. The three shares add up to 100%.
- If gross pay is ₹1,00,000, the same ₹12,000 is a savings ratio of 12%. Always say which income you used.
Result: Savings ratio = savings ÷ income. The answer changes with the definition of income, so state it.
Illustration with an invented household and assumed figures.
Trainer notes
Some people count the principal part of an EMI as saving, because it adds to what they own. That is a fair view, but say so if you do it. There is no regulatory 'right' savings ratio, and we do not give clients a target figure.
How an EMI is calculated
THE LOAN
Loan: ₹10,00,000.
Interest: 9% a year, charged monthly, so 0.75% a month.
Tenure: 10 years, or 120 monthly instalments.
- EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1), with P = ₹10,00,000, r = 0.0075 and n = 120. This gives ₹12,668 (₹12,667.58).
- Month 1: interest is ₹10,00,000 × 0.75% = ₹7,500. The other ₹5,168 reduces the loan.
- Month 2: interest is charged on the smaller balance, so a little more of the EMI goes to the loan.
- Over 120 months the borrower pays ₹15,20,109 in all: ₹10,00,000 of loan and ₹5,20,109 of interest.
Result: The EMI stays the same. What changes each month is how it is split between interest and loan.
Illustration with assumed figures. Actual loans add fees, which show up in the APR.
Trainer notes
Do the month-1 split on a phone calculator with the room. The formula is the standard annuity formula; spreadsheet users can get the same answer with the PMT function. RBI requires banks to charge interest at monthly rests, which is why the rate is divided by 12.
Early EMIs are mostly interest
| Interest paid (₹ thousand) | Loan repaid (₹ thousand) | |
|---|---|---|
| Yr 1 | 87 | 65 |
| Yr 2 | 81 | 71 |
| Yr 3 | 75 | 77 |
| Yr 4 | 67 | 85 |
| Yr 5 | 60 | 93 |
| Yr 6 | 51 | 101 |
| Yr 7 | 41 | 111 |
| Yr 8 | 31 | 121 |
| Yr 9 | 20 | 132 |
| Yr 10 | 7 | 145 |
Read the chart
- Each year the 12 EMIs add up to about ₹1.52 lakh. Only the split changes.
- In year 1, ₹87,377 goes to interest and ₹64,634 to the loan.
- From year 3 the loan part is larger than the interest part.
- So a part-prepayment made early saves more interest than the same amount paid late.
Illustration: computed from the EMI formula on the previous slide. Assumed figures, not a quote for any loan.
Trainer notes
After two years the borrower has paid ₹3.04 lakh in EMIs but still owes ₹8.65 lakh (₹8,64,669). That surprises most people. The prepayment point holds for the same rate and the same remaining tenure.
How a floating-rate loan follows repo
A benchmark is chosen
New floating-rate retail and MSME loans from commercial banks are linked to an external benchmark, such as RBI's repo rate or a T-bill yield.
A spread is added
The loan rate = benchmark + spread. The bank is free to set the spread, and the benchmark forms part of the loan contract.
The spread is mostly fixed
The credit risk part changes only if the borrower's credit assessment changes substantially. Other parts may change once in three years.
The rate resets
The rate must be reset at least once in three months, so a repo change reaches the loan at the next reset.
EMI or tenure adjusts
At a reset the EMI, the tenure, or both change. The borrower must be offered the choice and told of the change.
Sources: RBI Interest Rates on Advances Directions, 28 Nov 2025, paras 25, 33, 38; RBI RBC Directions, 28 Nov 2025, para 349 (from circular of 18 Aug 2023).
Trainer notes
Banks may cut the non-credit parts of the spread sooner than three years to retain customers. Loans still linked to an older internal benchmark (MCLR or base rate) continue until repayment or renewal. Fixed-rate loans do not reset.
When the rate rises: EMI or tenure
The ₹10 lakh loan after 24 EMIs: ₹8,64,669 is still owed. At a reset the rate rises from 9% to 9.5%.
| Choice at reset | What changes | Total interest over the loan |
|---|---|---|
| No rate change | EMI ₹12,668 for the remaining 96 months. | ₹5,20,109 |
| Keep the end date | EMI rises by ₹225 to ₹12,893 for the remaining 96 months. | ₹5,41,748 |
| Keep the EMI | EMI stays ₹12,668. It takes 99 more instalments, the last one ₹7,362, instead of 96. | ₹5,52,806 |
Illustration with assumed figures, computed exactly. A third option is a mix: a smaller EMI rise and a smaller tenure extension.
Trainer notes
Keeping the EMI costs more interest because the loan is repaid more slowly. The RBI rule also says a longer tenure must not lead to negative amortisation, where the EMI does not even cover the interest and the balance grows.
Where things stand
Household figures are national totals as a share of GDP (new base 2022-23). Rules and rates as on 16 Oct 2026.
- NET FINANCIAL SAVINGS
- 6.3%Of GDP in 2025-26 (preliminary). It was 7.1% in 2024-25.
- HOUSEHOLD BORROWING
- 6.2%New household borrowing in 2025-26 as a share of GDP. 4.9% in 2024-25.
- REPO RATE
- 5.50%Raised 0.25 percentage point on 7 Oct 2026. Linked loans follow at reset.
- CPI INFLATION
- 5.54%September 2026, year on year, provisional (base 2024=100).
Sources: RBI Bulletin, Table 52(a), 25 Sep 2026; RBI Monetary Policy Statement, 7 Oct 2026; MoSPI CPI press release, 12 Oct 2026.
Trainer notes
Net financial savings = financial assets households added (12.5% of GDP in 2025-26) minus what they borrowed (6.2%). It leaves out physical savings such as houses and gold. RBI says these estimates will be revised. State the figures; do not predict the next rate decision.
If you learnt this from older material
What older decks say
- Floating rates follow the bank's own lending rate.
- At a rate rise, the lender decides how EMI or tenure moves.
- Compare loans by their interest rate.
What holds now
- New floating retail loans from banks track an external benchmark like repo, since 1 Oct 2019.
- The borrower chooses higher EMI, longer tenure or both, by 31 Dec 2023.
- A Key Facts Statement gives the all-in annual cost (APR), since 1 Oct 2024.
Take-away: No pre-payment charge on floating-rate personal loans to individuals; from 1 Jan 2026, MSE loans too.
Sources: RBI circulars 4 Sep 2019, 18 Aug 2023, 15 Apr 2024; Pre-payment Charges Directions, 2 Jul 2025; banks: RBC Directions, 28 Nov 2025, paras 348-353.
Trainer notes
The 2019 rule covered new loans; older loans on MCLR or base rate continue until repayment or renewal. The 2025 pre-payment Directions apply to loans sanctioned or renewed from 1 January 2026 (banks, co-operative banks, NBFCs, AIFIs); banks also cannot charge it on older floating-rate non-business loans to individuals. Since 1 October 2025 a lender may, but need not, offer a fixed-rate switch at reset.
Four things people get wrong
Misconception'My EMI mostly pays off the loan.'
What is trueNot at first. In the example, ₹7,500 of the first ₹12,668 is interest. The loan part grows month by month.
Misconception'Repo went up, so my EMI rises tomorrow.'
What is trueA repo-linked loan changes at its next reset, at least once in three months. A fixed-rate loan does not change.
Misconception'A lower EMI means a lower total cost.'
What is trueStretching ₹10 lakh at 9% from 10 to 20 years cuts the EMI to ₹8,997 but raises total interest from ₹5.20 lakh to ₹11.59 lakh.
Misconception'Lower net savings means people saved less.'
What is trueNet financial savings is assets added minus borrowing. In 2025-26 households added more assets, but they also borrowed more.
Trainer notes
The 20-year figures use the same assumed loan and rate (EMI ₹8,997.26; total interest ₹11,59,342). On the last point: financial assets added rose from 12.0% to 12.5% of GDP between 2024-25 and 2025-26, while borrowing rose from 4.9% to 6.2% (RBI Bulletin, 25 Sep 2026).
Check yourself
Question 1: A person takes home ₹60,000 a month and puts ₹9,000 into savings and investments. What is the savings ratio, and what should you say alongside it?
Answer: ₹9,000 ÷ ₹60,000 = 15%. Say that it is measured on take-home pay; on gross pay the ratio would be lower.Question 2: A ₹10 lakh loan at 9% a year has an EMI of ₹12,668. How much of the first EMI is interest?
Answer: ₹10,00,000 × 0.75% = ₹7,500 is interest. The remaining ₹5,168 reduces the loan.Question 3: RBI raises the repo rate. A client's home loan is linked to repo. When does the rate change, and what choice must the lender offer?
Answer: At the loan's next reset, which happens at least once in three months. The lender must offer a higher EMI, a longer tenure, or a combination, and must not let the tenure extension cause negative amortisation.
Sources and disclaimer
Sources for the figures in this explainer
- Household net financial savings, assets and borrowing (% of GDP, base 2022-23): RBI Bulletin, Table 52(a), dated 25 Sep 2026.
- External benchmark, spread and three-monthly reset: RBI (Commercial Banks – Interest Rates on Advances) Directions, 2025, 28 Nov 2025; RBI circular of 4 Sep 2019.
- EMI reset choices, Key Facts Statement, APR: RBI Responsible Business Conduct Directions, 28 Nov 2025, paras 348-349 (from circulars of 18 Aug 2023 and 15 Apr 2024).
- Pre-payment charges: RBI (Pre-payment Charges on Loans) Directions, 2 Jul 2025; banks: RBC Directions paras 352-353. Repo 5.50%: RBI Monetary Policy Statement, 7 Oct 2026.
- CPI inflation 5.54% for September 2026 (provisional, base 2024=100): MoSPI press release dated 12 Oct 2026.
- All households, loans and amounts in the worked examples are invented for illustration and computed exactly.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).