What changed
RBI directed banks to ensure real estate borrowers have prior government/local authority clearances before loan disbursement. Sanctions can be done in normal course, but disbursement must wait for clearances. This tightens the loan approval process to reduce excessive risk.
What it means for you
Banks must now verify statutory approvals before releasing funds for real estate projects, adding a compliance step. This reduces the risk of lending to projects that may face legal or regulatory hurdles, protecting asset quality. Lenders need to update their disbursement workflows and borrower documentation checks.
What you must do
- Update loan disbursement policies to require proof of government clearances before releasing funds for real estate projects.
- Train credit officers to verify borrower approvals from local/statutory authorities during the disbursement stage.
- Review existing real estate loan portfolios to ensure compliance with this clearance requirement for future disbursements.
- Communicate the new condition to borrowers upfront in sanction letters to avoid delays.
Who it affects
All scheduled commercial banks, Real estate lending teams, Credit risk and compliance departments, Borrowers in the real estate sector
Can we sanction a real estate loan before the borrower gets government clearances?
Yes, the circular allows sanction in normal course, but disbursement must only happen after the borrower obtains all required clearances from government or statutory authorities.
What types of clearances are needed?
The circular refers to prior permission from government, local governments, or other statutory authorities for the project, wherever required. The specific clearances depend on the project and location.