Categories: Loans and advances

Innovative housing loan products and upfront disbursal of loan

Updated as per RBI master circular dated April 2, 2024

According to the RBI master circular, the Central Bank has been observing that some banks have introduced certain innovative Housing Loan Schemes in association with developers/builders, such as upfront disbursal of sanctioned individual housing loans to the builders without linking the disbursals to various stages of construction of housing project, Interest/EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period/ specified period, etc.

This type of housing loan scheme might include the signing of a tripartite agreement between the bank, the builder, and the buyer of the housing unit. These loan products are popularly known by various names like 80:20, and 75:25 schemes.

However, the banking regulator expressed its serious concern about such housing loan products that are likely to expose the banks as well as their home loan borrowers to additional risks. For instance, if there is a dispute between individual borrowers and developers/builders, default/ delayed payment of interest/ EMI by the developer/ builder during the agreed period on behalf of the borrower, non-completion of the project on time, etc. the risk of account turning into NPA. Moreover, any delayed payments by developers/ builders on behalf of individual borrowers to banks may lead to lower credit rating/ scoring of such borrowers by credit information companies (CICs) as information about the servicing of loans gets passed on to the CICs regularly.

Above all, in cases, where bank loans are 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 associated risks of diversion of funds.

Therefore, it is made obligatory for lenders to  disburse housing loans sanctioned shall be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete / under-construction / green field housing projects. However, the Reserve Bank has exempted banks from the above rule in cases of projects sponsored by Government/Statutory Authorities, banks may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of constructions, provided such authorities have no history of non-completion of projects.

“It is emphasized that banks while introducing any kind of product should take into account the customer suitability and appropriateness issues and also ensure that the borrowers/ customers are made fully aware of the risks and liabilities under such products”, said RBI.

Other useful articles on home loans:

IMPORTANT PRE-SANCTION HOME-LOAN REGULATIONS LAY DOWN BY RBIHOME LOAN INTEREST: FLOATING OR FIXED RATES WHICH IS BETTER FOR YOU?HOW DOES A BANK DECIDE YOUR HOME LOAN ELIGIBILITY?
HOME LOAN TAKEOVER PROCESS BY BANKS EXPLAINEDTHINGS TO KNOW WHILE BUYING OR SELLING HOUSE PROPERTY, ASSOCIATED COSTS INVOLVED IN HOME LOANS, EMI CALCULATION TAX RULES ETC.IS YOUR LENDER INSISTING YOU BUY AN INSURANCE PLAN BEFORE SANCTIONING A HOME LOAN? HERE’S WHAT TO DO
KNOW ALL THE ASSOCIATED COSTS OF YOUR HOME LOAN BEFORE YOU APPLYWHAT HAPPENS IF YOU REPAY YOUR HOME LOAN AHEAD OF SCHEDULE?YOU NEED TO KNOW HOW RERA OFFERS 15 MAJOR BENEFITS TO HOME BUYERS
HOW DOES THE CERSAI DATABASE HELP HOMEBUYERS AND BANKS?WILL I QUALIFY FOR A SECOND HOME LOAN?TEASER RATE HOME LOANS: KNOWING JUST THE AMOUNT OF THE EMI OR THE INTEREST RATE IS NOT GOOD ENOUGH
HOW TO APPLY FOR HOME LOANS: PROCEDURE AND PRACTICE FOR HOME LOANSHOUSING FINANCE FOR CONSTRUCTION OF BUILDING/READY-BUILT HOUSES: UPDATED RULES AND REGULATIONSINNOVATIVE HOUSING LOAN PRODUCTS AND UPFRONT DISBURSAL OF LOAN

To know more, continue ….

RBI NORMS ON HOUSING FINANCES TO INDIVIDUALS FOR DIFFERENT PURPOSES NORMS ON RESETTING OF FLOATING RATE OF INTEREST ON EMI-BASED LOANS IMPORTANT PRE-SANCTION HOME-LOAN REGULATIONS LAY DOWN BY RBI
INNOVATIVE HOUSING LOAN PRODUCTS AND UPFRONT DISBURSAL OF LOAN DO YOU KNOW THESE ENTITIES ARE NOT ELIGIBLE FOR BANK FINANCE FOR CONSTRUCTION OF BUILDINGS?  
 

 

Surendra Naik

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Surendra Naik

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