SBI does away with pre-closure penalty on home loans

Faced with rising bad loans, state-run lender State Bank of India (SBI) has decided to do away with pre-payment charges on home loans, thereby allowing borrowers to foreclose their accounts.

The SBI move follows a directive by housing finance regulator National Housing Bank (NHB) to all housing finance companies to desist from imposing pre-payment penalty on home loans.

NHB has also directed housing finance companies to follow uniform rates of interest for old and new borrowers of the same credit rating (or risk profile).

The Reserve Bank of India had also proposed to scrap the pre-payment penalty, which has been restricted to home loans.

The RBI had proposed to implement the recommendations of the Damodaran Committee on doing away with prepayment charges, on which a broad consensus has emerged.

SBI, like most other banks in the country, has been charging pre-payment penalties of 2 per cent on housing loans with floating interest rates taken before May 2011.