Country’s largest lender State Bank of India (SBI) has decided to abolish pre-payment charges on home loans, giving some succour to borrowers who want to foreclose their accounts. SBI has decided to do away with the pre-payment charges on all kinds of housing loans with immediate effect. The bank has been charging pre-payment penalties only on housing loans with floating interest rates taken before May 2011.
It has been charging about 2% of the outstanding amount as penalty if borrowers opted to foreclose their loans. The decision from the largest lender will prompt other lenders to follow the suit.
At present, some banks are charging up to 2% as pre-payment penalty on the loan outstanding, if a borrower settles the full payment before maturity by switching over to another lender.
No pre-payment fine is charged if borrowers pay using their own funds. It may be be noted that the Reserve Bank has indicated that it would scrap prepayment penalties charged by banks.
“It is proposed to implement the recommendations of the Damodaran Committee, on which a broad consensus has emerged, as also the action points which were identified by the IBA (Indian Banks’ Association) and BCSBI (Banking Codes and Standards Board of India) in the last Banking Ombudsmen conference,” RBI had said in its mid-year credit policy review.
Source- PTI
