What changed
RBI has directed RRBs to add a specific clause in loan terms for housing projects, mandating builders to disclose mortgage information in promotional materials. This follows a Bombay High Court observation on transparency. Funds cannot be released until the builder complies with these disclosure requirements.
What it means for you
RRBs must enforce stricter transparency in housing finance, reducing buyer risk from undisclosed mortgages. This adds compliance steps for lenders, requiring verification of builder disclosures before disbursement. It may slow loan processing but protects banks from legal disputes and enhances borrower trust.
What you must do
- Update loan sanction terms for housing projects to include mandatory mortgage disclosure clauses.
- Verify that builders disclose the mortgagee bank's name in all brochures, pamphlets, and advertisements.
- Ensure builders provide NOC or permission from the mortgagee bank for property sales, as required.
- Do not release funds until the builder fulfills all disclosure requirements.
- Train loan officers on the new clause and compliance checks.
Who it affects
Regional Rural Banks (RRBs), Builders and developers of housing projects, Homebuyers and property purchasers
What specific disclosures must builders make under this RBI directive?
Builders must disclose the name of the bank(s) to which the property is mortgaged in pamphlets, brochures, and advertisements. They must also indicate that a No Objection Certificate (NOC) from the mortgagee bank will be provided for property sales if required.
When can RRBs release funds for a housing project under this rule?
Funds should not be released until the builder or developer fully complies with the disclosure requirements, including mentioning the mortgage details and NOC availability in promotional materials.
Why did RBI issue this directive to RRBs?
The directive follows a Bombay High Court observation in a case, emphasizing that banks should ensure disclosure of property charges or liabilities to protect homebuyers from hidden mortgages.