SBI (State Bank of India) is one of the first-movers in the Indian banking sector and that too at a time when several new measures have transformed the entire ecosystem. SBI was one of the first to come up with home loans linked to the repo rate along with changing its rates of interest in order to enable better transmission of rate cuts to customers.
SBI has recently confirmed its decision to start charging processing fees on home loans and top-up loans along with loans for real estate companies and corporate entities. SBI has released its official statement where it has stated that the entire waiver of consolidated processing fees which was provided in the festive season for loans till 31st December, 2019, has been withdrawn. This waiver will be applicable for loan proposals till the 15th of October, 2019. SBI had recently tied its lending rates to the repo rates as a benchmark, leading to a major cut in its loan interest rates and income from interest.
More details on the processing fees and other aspects
SBI will now be charging 0.4% as the processing fee or approximately Rs. 10-30,000 for individual customers. Rs. 5,000 will be charged from real estate companies by SBI as well. In recent times, the bank has slashed its MCLR (marginal cost of funds based lending rate) to the tune of 10 basis points with effect from 10th October, 2019.
This is the 6th MCLR reduction in succession that has been implemented by SBI for the current financial year and comes after the reduction in the repo rate by another 25 basis points by the RBI (Reserve Bank of India) sometime earlier. The RBI’s MPC (Monetary Policy Committee) reduced the repo rate for the 5th consecutive time, lowering it to 5.15%.
However, SBI has also lowered interest rates for its savings accounts (retail) by 25 basis points. Savings accounts which have balances up to Rs. 1 lakh will get 3.25% as interest from the next month as compared to 3.5% at present. The lending rate was tied to the repo rate as a benchmark on 1st July, 2019. Prior to this decision, SBI was already offering the lowest interest rates in the banking system. After implementation of this landmark decision, the rates came down even further.
A software program was also unveiled by SBI on the 1st of July this year for automatically tying home loans to the benchmark repo rate. However, a rollback exercise took place for this software program on 1st August, 2019. After internal discussions, SBI concluded that other fees/charges should be imposed in order to compensate for the lower rate of interest on loans. The lending software was rolled out once again on the 1st of October, 2019.
The bank may also increase the prepayment fees later on along with the CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) registration charge. The processing fees for developers has been reintroduced at Rs. 5,000 as mentioned earlier while individual loan customers will have to pay a rate of 0.4% which will not exceed Rs. 30,000 as given above. In the current scenario, with SBI offering low rates of interest on home loans, customers may not really grudge the minimal processing fees as per industry experts.