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RBI tightens norms for disbursal of home loans

Banks are advised that disbursal of housing loans sanctioned to individuals should be linked to the stages of construction of the housing project

September 04, 2013 11:18 IST | India Infoline News Service
The Reserve Bank of India (RBI) has 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.

Some banks have introduced certain innovative Housing Loan Schemes with developers/builders, e.g. upfront disbursal of sanctioned individual housing loans to 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, the RBI said in a notification on Tuesday.

These loan products are popularly known by various names like 80:20, 75:25 Schemes. Such housing loan products are likely to expose the banks and home loan borrowers to additional risks e.g. in case of disputes between 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, it added.

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 and upfront disbursal should not be made in cases of incomplete/green field housing projects, RBI further said.

Banks while introducing any product should take into account the customer suitability and also ensure that the borrowers/customers are made fully aware of the risks and liabilities under such products, RBI added.


From June 21, the RBI revised the loan-to-value (LTV) ratio, which determines how much the banks can finance. For loans of up to Rs. 20 lakh, banks can lend up to 90%, while the borrower has to pay 10%.

For home loans between Rs. 20 lakh and Rs. 75 lakh, the LTV ratio is 80:20 while for loans above Rs. 75 lakh, it is 75:25. The LTV ratio should not exceed the prescribed ceiling in all fresh cases of sanction.

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