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Banks
have the freedom to evolve their own guidelines on various aspects of granting
housing finance with the approval of their Boards.
VARIOUS REGULATIONS
Banks have to consider the following
RBI guidelines while formulating their policies. They should make sure that the
credit is not used for speculation in real estate.
(a) ACQUISITION OF LAND
Bank
may grant finance for purchase of a plot subject to the condition that the
borrower intends to construct a house on the said plot, within a period laid
down by the banks.
(b) CONSTRUCTION OF BUILDING / READY-BUILT
HOUSE
(ii) Bank may extend finance to a person
for buying/ constructing a second house for the purpose of self occupation.
(iii) Bank may finance the purchase of a
house to be let out on rent, when the borrower is posted outstation or he has
been provided accommodation by his employer.
(iv) Bank may finance the purchase of an
old house where the borrower is presently residing as a tenant.
(v) Banks may finance for construction in
slum areas. Credit in such cases may be extended directly to the slum-dwellers
on the guarantee of the Government, or indirectly through the State
Governments.
(vi) Bank may provide credit for slum
improvement schemes to be implemented by Slum Clearance Boards and other public
agencies.
(vii)Banks are advised to adhere to the
following conditions:
(a)
Where
the applicant owns a plot and requests for finance to construct a house, a copy
of the sanctioned plan by competent authority must be obtained before
sanctioning the loan.
(b)
Construction
shall be strictly as per the sanctioned plan. The executants will obtain
completion certificate within 3 months of completion of construction, failing
which the bank may recall the entire loan with interest and other charges.
(c)
An
Architect appointed by the bank must certify that the construction of the
building is as per plan and shall certify that the completion
certificate of the building issued by the competent authority has been
obtained.
(d)
In
case of a built up house, it is mandatory for the borrower to declare by way of
an affidavit-cum-undertaking that the built up property has been constructed as
per the sanctioned plan and building bye-laws and as far as possible has a
completion certificate also.
(e)
An
Architect appointed by the bank must certify before disbursement that the built
up property is as per sanctioned plan and building bye-laws.
(f)
No
loan should be given in respect of those properties which fall in the category
of unauthorized colonies
(g)
No
loan should be given for purchase of residential property which the borrower
declares he will use for commercial purposes.
(viii) Supplementary Finance
(a)
Banks
may consider requests for additional finance within the overall ceiling for
carrying out alterations/ additions/repairs to the house/flat already financed
by them.
(b)
In
the case of individuals who need supplementary finance, banks may extend it
after obtaining paripassu or second mortgage charge over the property
mortgaged in favour of other lenders.
(c)
Banks
may consider to grant finance to –
(i) the bodies constituted for
undertaking repairs of houses, and
(ii)
the
owners, for repair/addition, subject to obtaining estimate of cost , and
security as deemed appropriate.
(a)
Banks
should not grant finance for construction of buildings meant purely for Government/Semi-Government
offices. However, banks may grant loans for activities, which will be
refinanced by institutions like NABARD.
(b)
Projects
which are not registered under Companies Act may not be financed by banks. Banks
should satisfy themselves that the project is run on commercial lines and that
bank finance is not in lieu of budgetary resources. The loan could, however,
supplement budgetary resources if such supplementing was contemplated in the
project design. In such cases, Banks will finance the difference of total
project cost and the subsidy/capital contribution receivable from the
Government.
(c)
As
projects for construction of residential quarters for allotment to Government employees
cannot be considered to be run on commercial lines, it would not be in order
for banks to grant loans to such projects.
(C)
LENDING
TO HOUSING INTERMEDIARY AGENCIES
(i) Financing of Land Acquisition
(a) Banks may extend finance to public
agencies and not private builders for acquisition and development of land,
provided it is a part of the complete project, including development of infrastructure. Such credit may be extended by way of term loans. The project
should be completed within three years. If the project covers construction of
houses, credit extended in respect of individual beneficiaries should be on the
same terms and conditions as stipulated for financing the beneficiary directly.
(b)
Banks
should have a Board approved policy in place for valuation of properties.
(c)
As
regards the valuation of land, banks may be guided as under:
(i)
In
cases where land acquisition can be financed, the finance is to be limited to
the acquisition price (current market price) plus development cost.
(ii)
Wherever
land is accepted as collateral, valuation of such land should be at the current
market price only.
(ii) Lending to Housing Finance
Institutions
Banks may grant term loans to housing
finance institutions taking into account (long-term) debt-equity ratio, track
record, recovery performance and other relevant factors
(iii) Lending to Housing Boards and
Other Agencies
Banks
may extend term loans to state level housing boards and other public agencies.
However, banks must keep in view their past performance in the matter of
recovery from the beneficiaries and should also require them to ensure prompt
and regular recovery from the beneficiaries in future too.
(iv) Term Loans to Private Builders
(a) Commercial
banks may extend credit to private builders on commercial terms by way of loans
linked to each specific project where land is acquired and developed by State
Housing Boards and other public agencies.
(b)
Banks
however, are not permitted to extend fund based or non-fund based facilities to
private builders for acquisition of land even as part of a housing project.
(c)
The
period of credit for such loans may be decided by banks themselves based on
their commercial judgment subject to usual safeguards.
(d)
Such
credit may be extended to builders of repute, employing professionally
qualified
personnel.
It should be ensured, that the funds are not used for speculation.
(e) Price
charged from the ultimate beneficiaries should be based only on the documented
price of land, the actual cost of construction and a reasonable profit margin.
(v)
Terms
and Conditions for Lending to Housing Intermediary Agencies
(a) Term
loans may be granted to housing intermediary agencies against the direct loans
sanctioned/ proposed to be sanctioned such agencies.
(b) Term loans can be granted against
the direct loans sanctioned/proposed to be sanctioned to Non-Resident Indians
also. However, such agencies should be authorised by RBI to grant housing loans
to NRIs.
(c)
Under the Base Rate System these of loans will be priced with reference to Base
Rate which is the minimum interest rate for all loans.
(vi)
Adherence
to guidelines on Commercial Real Estate (CRE) exposure
Lending to housing intermediary
agencies will be subject to the guidelines on commercial real estate exposure.
3. QUANTUM OF LOAN
(a) While deciding the quantum of loan
to be granted as housing finance, banks should ensure that the LTV ( Loan to
Value) ratio for loans are as under:
Category of Loan
|
LTV Ratio (%)
|
(a) Individual Housing Loans
|
|
Upto ` 20 lakh
|
90
|
Above ` 20 lakh
& upto ` 75 lakh
|
80
|
Above ` 75 lakh
|
75
|
(b) CRE – RH
|
NA
|
(b)
Bbanks
should not include stamp duty, registration and other documentation charges in
the cost of the housing property, so that the effectiveness of LTV norms is not
diluted.
(c)
Where
the cost of the units does not exceed Rs.10 lakh, bank may add stamp duty,
registration and documentation charges to the cost for the purpose of
calculating LTV ratio.
(d)
Some
banks have introduced certain schemes where upfront disbursal is made to the
builders without linking the disbursals to various stages of construction .
Interest/EMI on these loans are serviced by the builders on behalf of the
individual borrowers during a specified period.
(e)
Such products expose the banks as well as individual borrowers to additional
risks. Further, any delayed payments by developers/ builders may lead to lower
credit rating of such borrowers. Banks also run disproportionately higher
exposures with risks of diversion of funds.
(f)
Disbursal
of housing loans should be closely linked to the stages of construction and
upfront disbursal should not be made in cases of incomplete /
under-construction / green field housing projects.
(g)
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 are not linked to the stages of constructions. However,
such authorities should not have a past history of non-completion of projects.
(h)
Banks
while introducing any product should take into account the customer suitability
and ensure that they are made fully aware of the risks and liabilities under
such products.
4.
RATE
OF INTEREST
Banks
should charge interest on housing finance with the directives on “Interest
Rates on Advances” issued by Reserve Bank of India.
5.
APPROVALS
FROM STATUTORY/ REGULATORY AUTHORITIES
While
appraising loan proposals involving real estate, banks should ensure that prior
permission has been obtained from the concerned authorities. Even though the
loan may be approved, but no disbursement should be made without obtaining
requisite clearances.
6.
DISCLOSURE
REQUIREMENTS
While
granting finance to housing / development projects, banks are to stipulate the
following terms and conditions:
(a)
the
builder will disclose the name(s) of the bank(s) to which the property is
mortgaged.
(b)
the
builder will publish the information relating to mortgage in their
advertisements.
(c)
the
builder will indicate in their pamphlets, that they would provide No Objection
Certificate (NOC) for sale of the property, if required.
(d)
Funds
should not be released unless the builder fulfils the above requirements.
(e)
The
above mentioned provisions will be applicable to Commercial Real Estate also.
7.
EXPOSURE
TO REAL ESTATE
Banks are advised to frame Board
approved prudential norms relating to the ceiling of real estate loans,
single/group exposure limit for such loans, margins, security,
repayment schedule and availability of supplementary finance, on the basis of
guidelines issued by RBI.
8. HOUSING LOANS UNDER PRIORITY
SECTOR
The grant of housing loan for the
purpose of the priority sector lending targets will be subject to the
instructions on “Priority Sector Lending” of RBI.
9.
FINANCING OF AFFORDABLE HOUSING-ISSUE OF LONG TERM BONDS BY BANKS
Banks can issue long-term bonds with a
minimum maturity of seven years to raise resources for lending to affordable
housing subject to the conditions mentioned in circular
on “Issue of Long term Bonds by Banks- Financing of Infrastructure and Affordable
Housing”.
10. ADDITIONAL GUIDELINES
It
is advised that banks should adhere to the National Building Code (NBC)
formulated by the Bureau of Indian Standards (BIS) in view of the importance of
safety of buildings especially against natural disasters. Banks should also
adopt the National Disaster Management Authority (NDMA) guidelines and suitably
incorporate them as part of their loan policies, procedures and documentation.
Based on the Master
Circular of 1/7/15. Please visit www.rbi.org.in
if required…………… Poppy
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