Link home loans to construction: RBI

The Reserve Bank of India (RBI) on Tuesday said that the disbursal of housing loans sanctioned to individuals should be linked to the stages of construction of the housing project and asked not to make upfront disbursal in the case of incomplete or under construction project.

The Reserve Bank of India (RBI) on Tuesday said that the disbursal of housing loans sanctioned to individuals should be linked to the stages of construction of the housing project and asked not to make upfront disbursal in the case of incomplete or under construction project. The step is aimed to protect home loan borrowers from the risk arising in case of a dispute between the developer and the borrower.

“In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project,” said the banking sector regulator in the notification.

Some developers, in association of banks, have started schemes under 20:80 or 30:70 name where a customer is required to pay 20% or 30 % of the total cost of the house while booking and is allowed to pay the rest of the amount later.

“In cases where bank loans are also disbursed upfront on behalf of their individual borrowers in a lump-sum to builders/developers without any linkage to stages of construction, banks run disproportionately higher exposures with concomitant risks of diversion of funds,” the RBI said.

The RBI’s move is likely to hit real estate developers who are reeling under a slump in demand, higher interest costs and softening realty prices in some places.