What changed
RBI issued a circular on May 6, 2010, directing NBFCs to incorporate a specific clause in loan terms for housing projects. This clause requires builders to disclose the mortgagee's name in all promotional materials and indicate if a No Objection Certificate (NOC) from the mortgagee is needed for property sales.
What it means for you
NBFCs must now enforce transparency in housing project financing by making mortgage disclosures a precondition for fund release. This protects homebuyers from hidden encumbrances and reduces legal risks for lenders. Non-compliance by builders can delay or stop disbursement of sanctioned loans.
What you must do
- Update loan sanction letters for housing projects to include the mandatory disclosure clause.
- Verify that builders' brochures and advertisements mention the mortgagee's name before releasing funds.
- Ensure builders provide a NOC or permission from the mortgagee for property sales, if required.
- Train credit and legal teams on the new stipulation to ensure consistent compliance.
Who it affects
All NBFCs financing housing or development projects, Builders, developers, and owners of housing projects, Homebuyers purchasing flats in such projects
What triggered this RBI circular?
The Bombay High Court observed in a case that banks financing housing projects should ensure disclosure of property mortgage in project brochures, leading RBI to extend the requirement to NBFCs.
What happens if a builder does not comply with the disclosure requirement?
NBFCs must not release funds to the builder until the disclosure clause is fulfilled, as per the circular's directive.