SBI Home Loans Shift to Lower Rates: Six Lakh Borrowers to Be Benefit

India's largest bank SBI (State Bank of India) will permit above six lakh home loan borrowers to shift to lower interest rates.

According to one the SBI's officer, This is aimed at strengthening customer bondage which can lead to gains for millions with mortgages if rivals match the RBI's bank’s gesture.

Gain  Rs. 6,000 per month

The decision will help about 30% of its home loan customers to bring down interest payments by as much as 2%, or a gain of about Rs. 6,000 per month on a 20 year tenure, Rs. 50 lakh laon, a back of the-envelope calculation shows.

There is no restriction on the tenure or the amount of the loan for customers to switch over. The bank is charging a fee of 1% of the outstanding amount to switch to the new rate.

For switching over, the only condition is that the home loan borrowers should not be a defaulter. If so, then he /she can pay the default amount and switch.

Create some goodwill

It was a choice between retaining customers from walking to another bank or forgoing interest income. SBI chose the latter as it will also create some goodwill.

Borrowers who have taken loans linked to State Bank Advance Rate (SBAR ) or the prime lending rate (PLR) are paying as much as 2 to 3 % more than existing floating rates that are linked to the Base Rate.

This is because the Base Rate is lower than the SBAR. SBI's Base Rate is currently at 10%, while the SBAR is 14.75%. Besides, the bank has also reduced the spread it charges over the Base Rate for housing loans. Because of this, new housing  loan rates have moved up.

Waive pre-payment penalty

SBI is initiating many steps to turn customer friendly, including becoming the first one to waive pre-payment penalty when private sector rivals were grumbling. It is on a customer acquisition drive, even if it is at the cost of sacrificing some profitability.

The SBI cut its processing fee, a major component of profit for some private banks. 

Difference is as high as 3%.

The bank now charges 10.5% for home loans up to Rs 30 lakh, 10.75% for loans between Rs 30 lakh and Rs 75 lakh, and 11% for upward of Rs 75 lakh. This compares with the 13.75% which customers who took loans before the ‘teaser rates’ were launched, had to pay. Those borrowers who took a home loan even a year ago are paying higher rates. In some cases, the difference is as high as 3%.


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