What changed
RBI observed banks offering innovative housing loan schemes (e.g., 80:20, 75:25) where sanctioned loans were disbursed upfront to builders without linking to construction stages. Such products often involved tripartite agreements and builder-serviced EMIs. The circular now mandates that disbursal of housing loans to individuals must be closely tied to the progress of construction, and upfront disbursal is barred for incomplete or greenfield projects.
What it means for you
Banks can no longer offer popular schemes that disburse the full loan amount upfront to builders, which exposes both lenders and borrowers to risks like project delays, fund diversion, and borrower credit rating hits from delayed EMI payments by builders. Lenders must now ensure each disbursement tranche corresponds to a verified stage of construction, reducing exposure to unfinished projects. This may slow loan disbursal cycles but strengthens asset quality and customer protection.
What you must do
- Review all existing housing loan products and discontinue any that involve upfront lump-sum disbursal to builders for under-construction projects.
- Revise loan sanction and disbursal processes to link each tranche to verified construction milestones (e.g., foundation, slab completion).
- Update tripartite agreements and customer disclosures to clearly state that builder-serviced EMIs do not absolve the borrower of credit risk.
- Train credit and operations teams on the new disbursal norms and ensure compliance with customer suitability and appropriateness guidelines.
Who it affects
All scheduled commercial banks (excluding RRBs) offering housing loans, Home loan borrowers availing innovative schemes like 80:20 or 75:25, Developers and builders partnering with banks for such loan products, Credit information companies (CICs) receiving loan repayment data
What exactly is banned under this circular?
Banks cannot make upfront lump-sum disbursal of sanctioned housing loans to builders for incomplete or greenfield projects. Disbursals must be linked to stages of construction.
Why did RBI issue this directive?
RBI identified higher risks in such products, including fund diversion by builders, disputes between buyers and builders, and borrower credit score damage from delayed EMI payments by builders.
Does this affect existing loans already disbursed upfront?
The circular does not explicitly address past loans, but banks should review existing exposures and ensure future disbursals comply. For ongoing projects, banks may need to adjust disbursement schedules.