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SBI bid to cash in on festivity

Mumbai, Oct. 17: The State Bank of India today took the battle to its rivals by slashing the processing fees for home and car loans by 50 per cent. The country's largest commercial bank recently sparked a rate war by offering one of the lowest interest rates on home loans in a bid to corner business in the festive season when borrowers traditionally scout for deals.

The reduction in the processing fees is seen as an attempt not only to attract new customers with the festival season around the corner but also poach on the base of its rivals. The country's regulators ' the Reserve Bank of India and the National Housing Bank ' have done away with the levy of pre-payment penalty, thereby providing home loan borrowers a good opportunity to shift to lenders such as the SBI who charge a lower interest rate.

In August, the country's largest bank brought down interest rates on housing loans up to Rs 30 lakh to 10.25 per cent from 10.50 per cent. Similarly, interest rate on home loans above Rs 30 lakh and up to Rs 75 lakh were revised to 10.40 per cent against 10.75 per cent earlier. Subsequently it reduced the benchmark base rate by 25 basis points, thus making home and auto loans even cheaper. The housing loans provided by the SBI are at least 25 basis point lower than those offered by its larger peers.

In a statement issued today, the bank said the new processing charges would be applicable to loans availed from October 17 to December 31. "With this reduction, the bank is quoting the lowest processing fee on both home and auto loans to our customers," it said.

For home loans up to Rs 25 lakh, the processing charge has become 0.125 per cent of the loan amount from 0.25 per cent earlier. Similarly, in case of loans between Rs 25 lakh and Rs 75 lakh, the processing fee would now stand at Rs 3,250 against Rs 6,500, while for loans above Rs 75 lakh, it would be a flat Rs 5,000 compared with Rs 10,000 per application earlier.

With regard to auto loans, the processing charge has been slashed to 0.255 per cent of the loan amount against 0.51 per cent. It will come down to Rs 510 on the lower side.

"Despite the reduction in home-loan rates on new loans, we believe the risk of higher pre-payment in the existing home-loan book of private players is a concern. The difference between new home loan rates offered by SBI remains high compared with around 11 per cent plus charged to existing customers of HDFC. Banks and housing-finance companies do not charge a pre-payment penalty (as mandated by the regulator) thereby making their portfolios more vulnerable to pre-payment," a report from Kotak Institutional Equities said.

Quiz: How well do you know India's economy?

Question 1

Which of these products is India the world's largest producer of?

Poll Choice Options
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