No penalty on pre-payment of SBI home loans

Country's largest lender State Bankof India (SBI ) has decided to abolish pre-payment charges on home loans , givingsome succour to borrowers who want to foreclose their accounts.

"We have decided to do away with the pre-paymentcharges on all kinds of housing loans with immediate effect," a seniorofficial of the bank said.

The bank has been charging pre-payment penalties only onhousing loans with floating interest rates taken before May 2011, the officialsaid. It has been charging about 2 per cent of the outstanding amount aspenalty if borrowers opted to foreclose their loans.

The decision from the largest lender will prompt otherlenders to follow the suit.

The total outstanding home loan of SBI rose to Rs 92,383crore at the end of September against Rs 86,769 crore in March 2011.

At present, some banks are charging up to 2 per cent aspre-payment penalty on the loan outstanding, if a borrower settles the fullpayment before maturity by switching over to another lender.

No pre-payment fine is charged if borrowers pay using theirown funds.

It may be noted that the Reserve Bank has indicated that itwould scrap prepayment penalties charged by banks.