What changed
RBI prohibited RRBs from making lump-sum upfront disbursals of sanctioned housing loans to builders for under-construction projects. Disbursals must now be tied to specific stages of construction. This targets schemes like 80:20 or 75:25 where builders service EMIs during construction.
What it means for you
RRBs must redesign housing loan products to ensure funds are released only as construction progresses, reducing exposure to builder default and project delays. Borrowers' credit scores will no longer be at risk from builder payment failures. Banks face higher operational costs to monitor construction stages but gain better risk control.
What you must do
- Review all housing loan products and stop upfront lump-sum disbursals to builders for under-construction projects.
- Implement stage-linked disbursement mechanisms tied to verified construction milestones.
- Update tripartite agreements to reflect stage-wise disbursement and borrower liability.
- Train loan officers on customer suitability and risk disclosure requirements for housing loans.
- Audit existing 80:20 or 75:25 schemes and migrate them to compliant structures.
Who it affects
Regional Rural Banks (RRBs), Home loan borrowers of RRBs, Builders and developers partnering with RRBs, Credit information companies (CICs) receiving loan data
What exactly is an 'upfront disbursal' housing loan?
It's a scheme where the bank pays the entire loan amount to the builder at once, instead of in stages as construction progresses. The builder often pays the borrower's EMI during construction.
Why did RBI ban this for RRBs?
Such loans expose banks to higher risks like fund diversion by builders, project delays, and borrower credit score damage if builders default on EMI payments.
Does this apply to completed houses?
No, the restriction is only for incomplete, under-construction, or greenfield housing projects. Completed projects are not affected.