RBI directs banks to link home loans to stages of construction

RBI directs banks to link home loans to stages of constructionThe Reserve Bank of India (RBI) on Tuesday directed banks to make sure that housing loans sanctioned to individuals must be disbursed in line with the completion of the different stages of construction of a project.

The central bank made it mandatory for banks that all disbursements of housing loans must not paid upfront to the developer/builder.

The main objective behind the move is to protect borrowers of home loans from the potential risk of a dispute between the borrower and developer.

In a notification, the RBI said, "Banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project."

The banking sector regulator's new directive to the banks is tough blow to home builders, who have so far been arranging 75-80 per cent from banks at the time of launching a project.

Under the current so-called 80:20 or 75:25 schemes, a home buyer pays 20-25 per cent of the price while the rest is arranged by the developer/builder from banks.

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