No longer current — withdrawn, no replacement on file yet
Source: Reserve Bank of India · RBI/2013-14/268 · issued 17 Sep 2013 · ~2 min read
Quick answerRBI has prohibited Primary Urban Co-operative Banks from making upfront lump-sum disbursal of housing loans to builders for under-construction projects. Disbursals must now be linked to construction stages to curb risks like fund diversion and borrower credit score damage.
What changed
RBI observed UCBs offering innovative housing loan schemes (e.g., 80:20, 75:25) where sanctioned loans were disbursed upfront to builders without linking to construction stages. The circular explicitly prohibits such upfront disbursal for incomplete or green field housing projects and mandates stage-linked disbursement.
What it means for you
UCBs must now ensure every housing loan disbursal is tied to physical progress of construction, eliminating lump-sum payments to builders. This reduces risk of fund diversion, protects borrowers from credit score damage due to builder defaults, and aligns with customer suitability norms. Banks need to revise product structures and tripartite agreements accordingly.
Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.
What banks were required to do at the time
Review all existing housing loan products and discontinue any upfront disbursal schemes for under-construction projects.
Implement stage-linked disbursement mechanisms with clear verification of construction progress before each tranche.
Update tripartite agreements to reflect that builders cannot service interest/EMI on behalf of borrowers without explicit risk disclosure.
Ensure customer suitability assessments and risk disclosures are made for all housing loan products, especially innovative ones.
Train credit and operations teams on the new disbursal norms and monitor compliance through internal audits.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Home loan borrowers of UCBs, Builders and developers partnering with UCBs for housing projects, Credit information companies (CICs) receiving loan servicing data
❓ Common questions
Regulatory timeline
Decoded by BankPulse2026-06-18 12:43 IST
Status change: withdrawn03 Aug 2026, 04:00 IST
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
What exactly is prohibited under this circular?
UCBs cannot disburse the entire sanctioned housing loan amount upfront to builders for incomplete or under-construction projects. Disbursals must be linked to stages of construction.
Does this apply to completed housing projects?
No, the restriction is specifically for incomplete, under-construction, or green field housing projects. Completed projects are not covered.
What if a builder defaults on interest payments on behalf of the borrower?
Such defaults can negatively impact the borrower's credit score with CICs. The circular highlights this risk and requires banks to ensure borrowers are fully aware of liabilities.
📜 Read the original circular — full text as issued by RBI
RBI/2013-14/268
UBD CO BPD (PCB) Cir. No.17/09.22.010/2013-14
September 17, 2013
The Chief Executive Officer
All Primary (Urban) Co-operative Banks
Dear Sir / Madam,
Housing Sector: Innovative Housing Loan Products -
Upfront Disbursal of Housing Loans – Primary (Urban) Co-operative Bank
It has been observed that some banks have introduced certain innovative Housing Loan Schemes in association with developers / builders, e.g. upfront disbursal of sanctioned individual housing loans to builders without linking the disbursals to various stages of construction of housing project, interest / EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period / specified period, etc. This might include signing of tripartite agreements between the bank, the builder and the buyer of the housing unit. These loan products are popularly known by various names like 80:20, 75:25 Schemes.
2. Such housing loan products are likely to expose the banks as well as their home loan borrowers to additional risks e.g. disputes between individual borrowers and developers / builders, default / delayed payment of interest / EMI by the developer / builder during the agreed period on behalf of the borrower, non-completion of the project in time, etc. Further, any delayed payments by developers / builders on behalf of individual borrowers to banks may lead to lower credit rating / scoring of such borrowers by credit information companies (CICs) as information about servicing of loans gets passed on to the CICs on a regular basis. In cases where bank loans are also disbursed upfront on behalf of their individual borrowers in a lumpsum to builders / developers without any linkage to stages of construction, banks run disproportionately higher exposures with concomitant risks of diversion of funds.
3. In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, UCBs are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project / houses and upfront disbursal should not be made in cases of incomplete / under-construction / green field housing projects.
4. It is emphasized that UCBs while introducing any kind of product should take into account the customer suitability and appropriateness issues and also ensure that borrowers / customers are made fully aware of the risks and liabilities under such products.
Yours faithfully,
(Scenta Joy)
Deputy General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/268 · issued 17 Sep 2013. The plain-English explanation above is BankPulse’s own independent summary.
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8429&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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