What changed
RBI observed that some co-operative banks were disbursing entire housing loans upfront to builders under schemes like 80:20 or 75:25, bypassing stage-linked disbursement. This circular explicitly bans such upfront disbursals for incomplete or greenfield housing projects, requiring disbursements to be tied to construction progress.
What it means for you
Banks must now restructure their housing loan products to ensure funds are released only as construction milestones are met. This reduces the risk of fund diversion and protects borrowers from credit score hits due to builder defaults. Lenders will need to strengthen project monitoring and tripartite agreement oversight.
What you must do
- Review and revise all housing loan products to eliminate upfront disbursal for under-construction projects.
- Implement stage-linked disbursement mechanisms with clear verification of construction progress.
- Ensure customer suitability assessments and full disclosure of risks for any new housing loan products.
- Update tripartite agreements to reflect stage-wise fund release and builder obligations.
Who it affects
State Co-operative Banks (StCBs), Central Co-operative Banks (CCBs), Home loan borrowers of co-operative banks, Builders and developers partnering with co-operative banks
What exactly is banned under this circular?
Upfront disbursal of sanctioned individual housing loans to builders for incomplete or under-construction projects is banned. Disbursals must now be linked to construction stages.
Why did RBI issue this directive?
To mitigate risks like fund diversion, borrower credit score damage from builder defaults, and disputes between buyers and builders. Stage-linked disbursement ensures better project completion and loan recovery.
Does this affect completed housing projects?
No, the circular specifically targets incomplete, under-construction, or greenfield projects. Completed projects are not subject to this restriction.