Link home loans to stages of construction: RBI tells banks

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Mumbai: The Reserve Bank of India (RBI) on Tuesday asked banks to link the disbursal of home loans to stages of construction to protect the interests of buyers and contain the fallout of “innovative” housing financing schemes.
“In view of the higher risks associated with such lumpsum 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/houses,” an RBI notification said.
Upfront disbursal “should not be made in cases of incomplete or under-construction or green field housing projects,” the Reserve Bank of India (RBI) said.
The notification follows the introduction by some banks of “innovative housing loan schemes” in association with developers/builders, where upfront disbursal of housing loans is made to builders without being linked to the various stages of construction.
These loan products, the RBI said, are popularly known by names such as 80:20 and 75:25 schemes. Under such schemes, the interest or EMI on the housing loan availed of by the individual borrower is serviced by the builder during the construction period.