Why rates rise faster, fall slowly

loans/ Vijay Chandok

I had taken a housing loan three years back. When the interest rate went up, my bank was quick to increase the equated monthly instalment (EMI). But when the rates started falling, as was the case in the last ten months, the reduction in my EMI was not so rapid. Can you explain why do banks take a longer time when they have to revise rates downwards?
Generally, changes in the housing loan interest rates/ EMI is linked to the speed and rate of movement in market rates, which impacts the borrowing cost of banks. If the increase in market rates is rapid, chances of increase in the EMI is also rapid. Also, if the decrease is slower, chances of decrease in EMI is accordingly slower. 

Further, housing loan rates are generally reset on any revision (upward or downward) in the floating reference rate (FRR), which in turn, has an impact on EMI. The effective interest rate for a customer changes from the next reset date. 

The reset date depends upon whether the customer is on monthly or quarterly reset scheme (that is, if the rate changes after one or three months) based on which the rate revision/ change in EMI will also take place. Hence, there could be a delay in the revision. 

How does the prime lending rate (PLR) of a bank affect my housing loan rate? How can I track the movement of a bank’s PLR?
PLR is one of the benchmark rates used by all finance providers to determine applicable interest rate on housing loans. Thus, the applicable interest rate for your housing loan is linked to a benchmark rate (PLR being one of them). The interest rate that you pay moves in tandem with benchmark rates. As a result, it moves up or down based on movement in benchmark rates. 

Whenever there is a change in this rate, banks communicate this through their websites, leading publications and magazines and housing loan statements. 

How do I find out if there are hidden charges in my loan product?
It is important for a customer to consciously go through all the details mentioned in the agreement document. If there is a query or a clause that they don’t understand, they should immediately get it clarified with the concerned authority. Any negligence at that point of time can be a cause of concern at a later date. 

I had taken an education loan of Rs 8 lakh from a public sector bank for studying abroad. The moratorium period has lapsed. However, I have been unable to pay the required EMI as I have not been able to find a job in this market. My father is willing to help but he can only pay up to 50 per cent of the required EMI. What are my options?
Approach the bank and inform them about your current situation, including the financial position of your family. Seeking advice on what would be the best way forward by keeping in mind your current financial situation and the framework in which the bank operates is the best solution. In such circumstances, the bank is the best advisor and should be able to re-organise the repayment schedule of your loan. 

Most importantly, ensure that you honour all your liabilities and commitments as agreed between you and your bank after the meeting. And try to repay your obligations at the earliest when things get better. 

Vijay Chandok is a senior general manager of ICICI Bank. Send your queries at 
yourmoney@bsmail.in