"The decision is meant at creating goodwill. With regards to fees charged from retail customers, SBI will charge only to the extent of covering its cost and not earn profit on it,".

The bank has reduced processing fee on home loan above Rs 75 lakh to Rs 10,000 from Rs 20,000. For loans in the range of Rs 30 to Rs 75 lakh, the fee has been lowered to Rs 6,500 from Rs 10,000 earlier. The processing fee for loan below Rs 30 lakh continues to be 0.25% of the loan amount.

The new charges will be effective from January 11. Axis Bank and ICICI Bank charge 0.5% of the loan amount sanctioned as processing fee, while housing finance leader HDFC charges 0.50% of the loan amount with a cap of Rs 10,000.

So, on a loan of Rs 50 lakh currently, SBI's processing fee would be the cheapest among the four banks - it would be stand at Rs 6,500 as against Rs 25,000 (0.5% of Rs 50 lakh) charged by ICICI Bank and Axis Bank, and Rs 10,000 by HDFC. This is yet another aggressive stand taken by SBI to grab the home loan pie.

In November, SBI Home Loan was the first to do away with pre-payment penalty on floating and fixed rate loans. "In an environment where all banks are moving towards zero pre-payment charges, we believe processing fee in the industry would tend to rise over a period of time," said Jairam Sridharan, Axis Bank. "Also, the waiver of pre-payment penalty will only encourage customers to prepay more loans, more frequently.