Unlike most of the developed countries..wherein financial institutions do offer transparent floating rates, in India, we hardly have any bank which offers such kind of transparency.
The calculation of the benchmark PLR (based on which the home loan rates are derived with a mark-up)is arrived is not made public and nor is there any regulatory insistence to do so. Ideally the interest rates should move upwards and downwards with hardly some lag (say a month after the revision of benchmark PLRs)...but what happens in reality is banks increase the interest rates instantly and does not reduce them in case their borrowing costs go down..
We have many instances in India where banks have started giving new loans by creating a new benchmarks...so what was happening some time back with interest rates falling..the existing customers were not being passed the benefit of lowering interest rates, but banks use to enroll new customers offering lower interest rates with new benchmarks... and those existing people had to get out those locked in loans by paying penalties...what a crap....
My advice to people some time back was when interest rates were (6.75 - 7.00 fixed)was to lock in at 6.75 - 7 (for inflation will hover around 5-6% in a booming economy)..now they have made a killing...but of course things do change dramatically...
