HOUSING FINANCE IN INDIA
To consolidate framework of rules and regulations on Housing Finance issued by RBI Master Circular DBR.No.DIR.BC.13/08.12.001/2015-16 dated July 1, 2015.
In pursuance of National Housing Policy of Central Government, Reserve Bank of India has been facilitating the flow of credit to housing sector. Since housing has emerged as one of the sectors attracting a large quantum of bank finance, the current focus of RBI's regulation is to ensure orderly growth of housing loan portfolios of banks.
NATIONAL HOUSING POLICY
As part of the strategy to overcome the colossal housing shortage, the Central Government adopted a comprehensive National Housing Policy which, among other things, envisaged:
- Development of a viable and accessible institutional system for the provision of housing finance;
- Establishing a system where housing boards and development authorities would concentrate on acquisition and development of land and infrastructure; and
- Creation of conditions in which access to institutional finance is made easier and affordable for individuals for construction/buying of houses/flats. This may include outright purchase of houses/flats constructed by or under the aegis of public agencies.
Banks with their vast branch network throughout the length and breadth of the country occupy a very strategic position in the financial system and were required to play an important role in providing credit to the housing sector in consonance with the National Housing Policy.
While formulating their policies, banks have to take into account the following RBI guidelines and ensure that bank credit is used for production, constructions activities and not for activities connected with speculation in real estate.
(a) ACQUISITION OF LAND:
Bank finance granted only for purchase of a plot, provided a declaration is obtained from the borrower that he intends to construct a house on the said plot, with the help of bank finance or otherwise, within such period as may be laid down by the banks themselves.
(b) CONSTRUCTION OF BUILDING / READY-BUILT HOUSE:
(i) Banks may grant loans to individuals for purchase/construction of dwelling unit per family and loans given for repairs to the damaged dwelling units of families.
(ii) Bank may extend finance to a person who already owns a house in town/village where he resides, for buying/ constructing a second house in the same or other town/ village for the purpose of self-occupation.
(iii) Bank may extend finance for purchase of a house by a borrower who proposes to let it out on rental basis on account of his posting outside the headquarters or because he has been provided accommodation by his employer.
(iv) Bank may extend finance to a person who proposes to buy an old house where he is presently residing as a tenant.
(v) Banks may finance for construction meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the Government, or indirectly to them through the State Governments.
(vi) Bank may provide credit for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies.
(vii) Banks are advised to also adhere to the following conditions, in the light of the observations of Delhi High Court on unauthorized construction:
(a) In cases where the applicant owns a plot/land and approaches the banks/FIs for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of a person applying for such credit facility must be obtained by the Banks/FIs before sanctioning the home loan.
(b) An affidavit-cum-undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executants to obtain completion certificate within 3 months of completion of construction, failing which the bank shall have the power and the authority to recall the entire loan with interest, costs and other usual bank charges.
(c) An Architect appointed by the bank must also certify at various stages of construction of building that the construction of the building is strictly as per sanctioned plan and shall also certify at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained.
(d) In cases where the applicant approaches the bank/FIs for a credit facility to purchase the built up house/flat, it should be mandatory for him to declare by way of an affidavit-cum-undertaking that the built up property has been constructed as per the sanctioned plan and/or building bye-laws and as far as possible has a completion certificate also.
(e) An Architect appointed by the bank must also certify before disbursement of the loan that the built-up property is strictly as per sanctioned plan and/or building bye-laws.
(f) No loan should be given in respect of those properties which fall in the category of unauthorized colonies unless and until they have been regularized and development and other charges paid.
(g) No loan should also be given in respect of properties meant for residential use but which the applicant intends to use for commercial purposes and declares so while applying for loan.
(viii) Supplementary Finance:
(a) Banks may consider requests for additional finance within the overall ceiling for carrying out alterations/ additions/repairs to the house/flat already financed by them.
(b) In the case of individuals who might have raised funds for construction/ acquisition of accommodation from other sources and need supplementary finance, banks may extend such finance after obtaining paripassu or second mortgage charge over the property mortgaged in favour of other lenders and/or against such other security, as they may deem appropriate.
(c) Banks may consider for grant of finance to –
(i) the bodies constituted for undertaking repairs to houses, and
(ii) the owners of building/house/flat, whether occupied by themselves or by tenants, to meet the need-based requirements for their repairs/additions, after satisfying themselves regarding the estimated cost (for which requisite certificate should be obtained from an Engineer / Architect, wherever necessary) and obtaining such security as deemed appropriate.
Lending to Housing Finance Institutions
Banks may grant term loans to housing finance institutions taking into account (long-term) debt-equity ratio, track record, recovery performance and other relevant factors including the other applicable regulatory guidelines.
Lending to Housing Boards and Other Agencies
Banks may extend term loans to state level housing boards and other public agencies. However, in order to develop a healthy housing finance system, while doing so, the banks must not only keep in view the past performance of these agencies in the matter of recovery from the beneficiaries but they should also stipulate that the Boards will ensure prompt and regular recovery of loan installments from the beneficiaries.
Adherence to guidelines on Commercial Real Estate (CRE) exposure
Lending to housing intermediary agencies will be subject to the guidelines on commercial real estate exposure.
Bank finance should, however, not be granted for the following:
(a) Banks should not grant finance for construction of buildings meant purely for Government/Semi-Government offices, including Municipal and Panchayat offices. However, banks may grant loans for activities, which will be refinanced by institutions like NABARD.
(b) Projects undertaken by public sector entities which are not corporate bodies (i.e. public sector undertakings which are not registered under Companies Act or which are not Corporations established under the relevant statute) may not be financed by banks.
QUANTUM OF LOAN
(a) While deciding the quantum of loan to be granted as housing finance, banks should ensure that the LTV ratio for loans are as under:
|Category of Loan||LTV Ratio (%)|
|(a) Individual Housing Loans|
|Upto ` 20 lakh||90|
|Above ` 20 lakh & upto ` 75 lakh||80|
|Above ` 75 lakh||75|
|(b) CRE – RH||NA|
(b) In order to have uniformity in the practices adopted for deciding the value of the house property while sanctioning housing loans, banks should not include stamp duty, registration and other documentation charges in the cost of the housing property they finance so that the effectiveness of LTV norms is not diluted.
(c) However, in cases where the cost of the house/dwelling units does not exceed Rs.10 lakh, bank may add stamp duty, registration and other documentation charges to the cost of the house/dwelling unit for the purpose of calculating LTV ratio.
(d) 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 the 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 agreement between the bank, the builder and the buyer of the housing unit. These loans products are popularly known by various names like 80:20, 75:25 schemes.
(e) Such housing loan products are likely to expose the banks as well as their home loan borrowers to additional risks e.g. in case of dispute 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 on 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 get 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 lump-sum to builders/ developers without any linkage to stages of constructions, banks run disproportionately higher exposures with concomitant risks of diversion of funds.
(f) Banks 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.
(g) However, in cases of projects sponsored by Government/Statutory Authorities, banks may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of constructions, provided such authorities have no past history of non-completion of projects.
(h) It is emphasized that banks while introducing any kind of product should take into account the customer suitability and appropriateness issues and also ensure that the borrowers/ customers are made fully aware of the risks and liabilities under such products.
RATE OF INTEREST
Banks should charge interest on housing finance granted by them in accordance with the directives on “Interest Rates on Advances” issued by Reserve Bank of India from time to time.
APPROVALS FROM STATUTORY/ REGULATORY AUTHORITIES
While appraising loan proposals involving real estate, banks should ensure that the borrowers should have obtained prior permission from government / local governments / other statutory authorities for the project, wherever required. In order that the loan approval process is not hampered on account of this, while the proposals could be sanctioned in normal course, the disbursements should be made only after the borrower has obtained requisite clearances from the government authorities.
EXPOSURE TO REAL ESTATE
Banks are well advised to frame comprehensive prudential norms relating to the ceiling on the total amount of real estate loans, single/group exposure limit for such loans, margins, security, repayment schedule and availability of supplementary finance and the policy should be approved by the bank’s board. While framing the bank’s policy the guidelines issued by the Reserve Bank should be taken into account.
HOUSING LOANS UNDER PRIORITY SECTOR
The grant of housing loan for the purpose of the priority sector lending targets including reporting requirements will be subject to the instructions on “Priority Sector Lending” as amended from time to time.
The following housing loans are categorised as Priority Sector Advances;
- Loan for Construction and Purchase: Loans to individuals up to Rs.35 lakh in metropolitan centres (with population of ten lakh and above) and loans up to Rs. 25 lakh in other centres for purchase/construction of a dwelling unit per family provided the overall cost of the dwelling unit in the metropolitan centre and at other centres should not exceed Rs. 45 lakh and Rs. 30 lakh respectively. The housing loans to banks’ own employees will be excluded.
- Loan for Repairs: Loans for repairs to damaged dwelling units of families up to Rs.5 lakh in metropolitan centres and up to Rs. 2 lakh in other centres.
- Loan to governmental agency: Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to a ceiling of Rs.10 lakh per dwelling unit.
- Loan for housing projects: The loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses for economically weaker sections and low-income groups, the total cost of which does not exceed Rs.10 lakh per dwelling unit. For the purpose of identifying the economically weaker sections and low-income groups, the family income limit of Rs.3 lakh for EWS and Rs. 6 lakh for LIG per annum, in alignment with the income criteria specified under the Pradhan Mantri Awas Yojana.
- Loan to HFC: Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of purchase/construction/ reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to an aggregate loan limit of Rs. 10 lakh per borrower.
- Outstanding deposits with NHB on account of priority sector shortfall.
QUESTION HUB (MORTGAGE/HOME LOAN)
Question: Sir I have a home loan now I am suffering for cancer How can bank provide me some financial help
Answer: Most of the banks provide Life insurance and Credit guarantee insurance to their home loan account holder. It means your home loan outstanding is secured with credit life insurance. Banks also provide Top Up Loan for any business/personal purpose to its Home Loan account holders. You may contact to bank for Top Up loan for treatment.
Question: Can I get home loan with furniture?
Answer: Many banks such as Bank of India provides loan for furnishing the house. This loan has same rate of Interest as Home loan. Loan limit is Rs.5 lakhs (15% of Home loan) for furnishing, If Solar PVs on the roof top Rs. 10 Lakhs [To be sanctioned as separate Personal loan with ROI as applicable to Home loan & max. repayment period of 10 years – Extension of charge over property]
Question: What is the rate of home loan interest for purchasing 5th flat?
Answer: Rate of Interest will be same for purchase of first flat or any subsequent number of flats. Margin money will be changed for first flat with second or any subsequent number of flats.
Question: If closed two-wheeler loan effect on home loan?
Answer: No, it will not affect existing home loan any way. If you want to apply for home loan, your loan eligibility amount will increase by reducing your total deduction (Maximum deduction 60% of your income if annal family income is up to Rs. One lakh) after closing of two-wheeler loan.
Question: Can a bank reschedule home loan without given information?
Answer: No, bank can reschedule home loan or any loan on the request of the borrower or after consent of the borrower. Proper notice or information is compulsory for reschedule of any loan account.
Question: Can a bank extend time period of home loan without giving information how many time period bank can increase?
Answer: No, bank can extend time period of home loan or any loan on the request of the borrower or after consent of the borrower. Proper notice or information is compulsory for reschedule of any loan account. Number of reschedule depends upon RBI and Bank’s own guideline.
Question: How to make a request for home loan status?
Answer: Home loan can apply online on bank’s website or through www.psbloansin59minutes.com and check the status online. Applicant can apply offline and demand information about status from branch.