Following the increase in the interest rates, the country’s largest lender, State Bank of India decided to hike the processing fee on loans. State Bank of India (SBI), as part of its strategy to enhance the non-interest income, has decided to increase the processing fee on loans. This new fee hike would hold for both corporate and retail loans.

Talking about this hike, Mr Ashok Mukand, Deputy Managing Director, State Bank of India said that, while the bank may still offer some concessions on a case-to-case basis, it will, in general, increase the card rates.

Since the RBI has hiked the repo rate, the cost of obtaining funds by banks has gone up, hence, any additional income will enable the bank to maintain its bottom-line. Many bankers feel that this move by SBI might trigger a similar response from various other public sector banks, and they may also take the step to increase their non-interest income. Due to increasing online transactions the fees from sale of bank drafts are seeing a slowdown and so the processing fees on loans are an important source of revenue, said some bankers.

While the fee income for large corporates grew by 61 per cent growth and for mid corporates by 43 per cent, SBI saw its fee income increase by 23 per cent for the year 2007-08.

The current processing fee for home loans of SBI, as mentioned on SBI’s website, is 0.25 per cent of the loan amount, with a cap of Rs 5,000, which includes the service tax.

On the other hand, its biggest competitor, and the largest private sector lender, ICICI Bank, charges 0.5 per cent of the loan amount as administrative fee or Rs 2,000, whichever is higher, on home loans.

Mr Mukand said, “Our processing fees are rather low now. We are looking to raise processing fees on corporate loans and retail loans, though there could be some concessions, on a case-to-case basis. As our prime lending rate and home loan rates are the lowest in the market, our charges will be lower than that of other banks, despite the increase in processing fees.”

He also said that the rise in interest rates is unlikely to affect margins.

“We have raised the interest rates on deposits only in certain bands, but in the case of loans, the increase will be across the board. So, profits should improve because of better returns on loans and margins should also improve,” he said.