The processing charges on home loans have been reduced to half by the State Bank of India. As other public banks offered a full deduction in the processing fee for a limited period and private banks innovates in their schemes to attract customers, SBI felt the need to reduce their home loan processing charges. Possibly an intelligent move to attract customers, SBI is currently facing a strong competition from fat private banks. This step may help SBI to beat them in the home loan market.
SBI already offers the lowest rates in the home loan segment. Now the halving of processing fee may have a detrimental effect on the banks like HDFC, ICICI Bank and Axis Bank who have not shown any sign of reduction in their charges. Also Reserve Bank of India banned banks from charging pre-payment penalty that has made it easier for the borrower to shift from one home loan lender to another at minimum cost.
SBI is planning to organize home loan festivals across different locations and hopes that the processing fee reduction will encourage the customers to take the home loans from them. The offer is till December 31, 2012. After the reduction, the processing fee will be of Rs.1000 for loans up to Rs.25 lakhs, Rs.3250 for loans between Rs.25-75 lakhs and maximum of Rs.5000 for loans above Rs.75 lakhs. SBI offers home loan at 10% for loans up to Rs.30 lakhs and 10.15% for loans above Rs.75 lakhs while its key rivals charge 25 to 50 points higher for this segment.
SBI said that it would charge a flat fee of Rs 1000 for those home loan borrowers who plan to switch to their schemes. “There is already some heart burn among customers for they are paying a higher rate. Secondly, they have anyway paid a fee to their existing bank. There is no point charging them again,” said the SBI officer.
“According to market sources, SBI’s recent home-loan marketing campaign focuses more on existing home-loan borrowers of other players than on gaining market share from new business. Notably, HDFC’s repayment rates increased in 2011 likely due to stiffer competition in retail loans and pre-payment of developer loans,” said Kotak Institutional Equities report.
This wise step from SBI will not only help customers but the competition will bring out the best in other banks, ultimately aiding the buyers to satisfy their desires of having a home.