The federal government is happy to see that major Australian banks are starting to actually compete with each other by bringing on to the table service offerings that intend to lure more customers and in the process deliver considerable benefits to their banking clients.

Federal Treasurer Wayne Swan said on Tuesday that the current tiff brewing between the Westpac Group and the National Australia Bank (NAB) would surely redound to the betterment of bank customers' welfare.

NAB and Westpac are currently on a head-on collision as both banks slash or waived their mortgage exit fees to entice more clients and possibly encourage them to switch banks, with prospects of more wars to come as the two giants also dangled considerable discounts on interest rates.

Monday night saw Westpac throwing out its $395 home loan fee and tossing further come-ons by attracting customers with progressive discount rates.

Swan said that the new banking development is a testament of the banking reforms introduced by Prime Minister Julia Gillard as he declared that "it's about time they had a scrap, it's about time we had a bit of competition."

Swan stressed that the stiff rivalry now being played out between NAB and Westpac "is coming about because the government has put a package out there which encourages competition."

NAB surprised the banking sector when it issued advisory on Saturday that clients wishing to move their mortgages from the Commonwealth Bank of Australia (CBA) and Westpac need not to worry about exit fees, NAB will be prepared to shoulder the payment for them.

That move, according to NAB, elicited mortgage inquiries, which jumped by more than 50 percent as of Monday night.

Westpac retaliated by waiving off its annual fees for new loan applications that range from $250,000 to $500,000, which leads to savings of $100 for consumers while those applying for loans worth more than $500,000 are poised to receive discounts of up to 0.8 percent or savings of up to $405 on a given year.

When reached for comments about the tightening rivalry among the country's major banks, CBA said that it is focused on delivering competitive products and efficient services that meet the needs of its customers while the ANZ Banking Group declared that it too has already initiated promos that would be of great interests to banking clients.