SBI to Slash Processing, Conversion Fees on Home Loans From Sept. 1

With the advent of festival season, India's largest lender the State Bank of India (SBI) has embarked upon a special campaign to ramp up its home loan book. It is going to reduce the processing fee for home loans to Rs 1000 per loan irrespective of the size. The offer would be made available from September 1, 2012 onwards, a senior bank official said.

Currently, loan processing is at 0.25% of the loan amount subject to a cap of Rs 6,500 for loans upto Rs 75 lakhs. For any higher loan amount, the maximum fee ceiling is Rs 10,000. For example, if you apply for a loan of Rs 20 lakhs, you need to pay a processing charge of Rs 1000. With the new offer, it will be uniform at Rs 1,000 for a home loan. However, the offer would end on Nov. 30, 2012.

At the same time, the banking behemoth is actively mulling reduction in conversion fee, which is presently at 1%. For all banks, conversion fees are in the range of 0.50–2%. This move, if implemented, will help the existing (SBI) home loan customers, who are not entitled to get the benefit of reduced interest rates to avail of the lowered interest rates. Let’s assume the loan size is Rs 30 lakhs and a customer has already repaid Rs 10 lakhs. Therefore, he has to pay Rs 20,000 (i.e., 1% of 30–10 lakhs) one-time upfront for the conversion.

Earlier, SBI cut the interest rates on home and auto loans by over 50 basis points, effective from August 7. However, it did not change the base rate (remains at 10% p.a), the benchmark rate below which the Reserve Bank of India does not allow any bank to lend. Now, a home loan borrower can avail of a home loan with interest at 10.25% as against 10.75% prior to the rate cut, for a ticket size of Rs 30 lakhs. The interest rate will be 10.40% for loans above Rs. 30 lakhs. The EMI on Home Loan tenor of 30 years is Rs.897 per lakh which is the lowest in the market.

However, the new rates are available only to the new customers. So, a customer who had taken a loan at a higher floating rate viz. 11.25% will be keen to avail the benefit of the current lower rate. So, he can convert his loan to the new rate by paying the conversion fee.