HOME LOANS AND RBI GUIDELINES ON 01-07-2011-READ COLUMN 13 FOR HOME LOAN CONDITIONS AND DIRECTIONS TO ALL THE BANKS BY THE RBI———————————— READ THE DELHI HIGH COURT ORDER ON ILLEGAL BUILDING AND ITS EFFECTS ON HOME LOANS AND RBI DIRECTIONS———-BEFORE BUYING ILLEGAL BUILDINGS

1 18 Minutes

READ COLUMN 13 FOR HOME LOAN CONDITIONS AND DIRECTIONS TO ALL THE BANKS BY THE RBI————————————

READ THE DELHI HIGH COURT ORDER ON ILLEGAL BUILDING AND ITS EFFECTS ON HOME LOANS AND RBI DIRECTIONS———-BEFORE BUYING ILLEGAL BUILDINGS

RESERVE BANK OF INDIA

Master Circular on Housing Finance

Date: Jul 01, 2011

RBI/ 2011-12/52
DBOD. No.DIR.BC. 03/08.12.001/2011-12July 1, 2011
10 Aashada, 1933 (Saka)All Scheduled Commercial Banks
(excluding RRBs)

Dear Sir/Madam,

MASTER CIRCULAR ON HOUSING FINANCE

As you are aware, in order to have all current instructions on a subject at one place, the Reserve Bank of India had issued a Master Circular DBOD.DIR(HSG.)No.7/08.12.01/2010-11 dated July 1, 2010 on the captioned subject, which is now updated up to 30th June 2011. It may be noted that the Master Circular consolidates and updates all the instructions contained in the circulars listed in the Appendix, in so far they relate to providing bank finance to the housing sector. This Master Circular also incorporates instructions contained in certain clarifications issued by RBI to banks during the course of the year. A copy of the revised Master Circular is enclosed.

Yours faithfully,

(P.R.Ravi Mohan)
Chief General Manager

Encls: As above

MASTER CIRCULAR ON HOUSING FINANCE

CONTENTS

Sr. No. Particulars
A Purpose
B Classification
C Previous instructions consolidated
D Scope of Application
Structure
1 Introduction
2 Direct Housing Finance
3 Indirect Housing Finance
4 Housing Loans under Priority Sector
5 RBI Refinance
6 Construction Activities eligible for Bank Credit
7 Construction Activities not eligible for Bank Credit
8 Reporting
9 Home Loan Account Scheme (HLAS) for NHB
10 Bank’s Exposure to Real Estate Sector
11 Risk Weight on Housing Finance
12 Loan to Value (LTV) Ratio
13 Delhi High Court Order on Unauthorized Construction
14 Terms and Conditions for Banks Investments in Mortgage Backed Securities (MBS)
15 Annex : Financial assistance granted by scheduled commercial banks under the category ‘Housing Finance’ as on September 30/March 31
16 Appendix : Housing Finance circulars

A.  Purpose

To consolidate framework of rules/regulations and clarification on Housing Finance issued by Reserve Bank of India from time to time.

B.  Classification

A statutory directive issued by the Reserve Bank in exercise of the powers conferred by Sections 21 and 35 A of the Banking Regulation Act, 1949.

C.  Previous instructions consolidated

This Master Circular consolidates and updates all the instructions contained in Circulars listed in the appendix and clarifications issued during the year.

D.  Scope of Application

Applicable to all Scheduled Commercial Banks, excluding Regional Rural Banks.

Structure

  1. Introduction
  2. Direct Housing Finance
  3. Indirect Housing Finance
  4. Housing Loans Under Priority Sector
  5. RBI Refinance
  6. Construction Activities Eligible For Bank Credit
  7. Construction Activities Not Eligible For Bank Credit
  8. Reporting
  9. Home Loan Account Scheme (HLAS) for NHB
  10. Banks’ Exposure to Real Estate Sector
  11. Risk Weight on Housing Finance

12.Delhi High Court Order on Unauthorized Construction

13.Terms and conditions for Banks Investments in Mortgage Backed Securities (MBS)

14.Annex : Financial assistance granted by scheduled commercial banks under the category ‘Housing Finance’ as on Sept. 30 /Mar.31

15. Appendix: Housing Finance circulars

1. INTRODUCTION

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.

1.1.1   National Housing Policy

As a part of the strategy to overcome the colossal housing shortage, the Central Government adopted a comprehensive National Housing Policy which, among other things, envisaged:

  1.        i.            development of a viable and accessible institutional system for the provision of housing finance;
  2.      ii.            establishing a system where housing boards and development authorities would concentrate on acquisition and development of land and infrastructure; and
  3.   iii.            creation of conditions in which access to institutional finance is made easier and affordable for individuals forconstruction/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.

1.1.2 Housing Finance Allocation

Keeping in view the objectives of National Housing Finance Policy, RBI was announcing minimum housing finance allocation annually on the basis of the growth of deposits recorded during the previous year till the year 2002-03.  Banks could deploy their funds under the housing finance allocation in any of the three categories, i.e.

  1.        i.            direct finance,
  2.      ii.            indirect finance,
  3.   iii.            investment in bonds of NHB/HUDCO, or combination thereof.

2.  DIRECT HOUSING FINANCE

2.1   Direct Housing Finance refers to the finance provided to individuals or groups of individuals including co-operative societies.

2.2   Banks are free to evolve their own guidelines with the approval of their Boards on aspects such as security, margin, age of dwelling units, repayment schedule, etc.

2.3 Other Guidelines

The following types of bank finance may be included under Direct Housing Finance:

  1.        i.            Bank finance extended 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.
  2.      ii.            Bank finance extended 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.
  3.   iii.            Bank finance extended to a person who proposes to buy an old house where he is presently residing as a tenant.
  4.    iv.            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.
  5.      v.            Supplementary finance
  6. 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.
  7. 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 pari passu or second mortgage charge over the property mortgaged in favour of other lenders and/or against such other security, as they may deem appropriate.

3.   INDIRECT  HOUSING  FINANCE

3.1 General

Banks should ensure that their indirect housing finance is channeled by way of term loans to housing finance institutions, housing boards, other public housing agencies, etc., primarily for augmenting the supply of serviced land and constructed units. It should also be ensured that the supply of plots/houses is time bound and public agencies do not utilise the bank loans merely for acquisition of land. Similarly, serviced plots should be sold by these agencies to co-operative societies, professional developers and individuals with a stipulation that the houses should be constructed thereon within a reasonable time, not exceeding three years. For this purpose, the banks may take advantage of various guidelines issued by NHB for augmenting the supply of serviced land and constructed units.

3.2 Lending to Housing Intermediary Agencies

3.2.1 Lending to Housing Finance Institutions

  1.        i.            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.
  2.      ii.            In terms of NHB guidelines, housing finance companies’ total borrowings, whether by way of deposits, issue of debentures/ bonds, loans and advances from banks or from financial institutions including any loans obtained from NHB, should not exceed 16 times of their net owned funds (i.e. paid-up capital and free reserves less accumulated balance of loss, deferred revenue expenditure and intangible assets).
  3.   iii.            All housing finance companies registered with NHB are eligible to apply for refinance from NHB and will be eligible subject to the refinance policy.  The quantum of term loan to be sanctioned to them will not be linked to net owned fund as NHB has already prescribed the above referred ceiling on total borrowing of housing finance companies.  A list of housing finance companies registered with NHB may be obtained by the banks directly from NHB or downloaded from http://www.nhb.org.in.

3.2.2 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.

3.2.3 Financing of Land Acquisition

In view of the need to increase the availability of land and house sites for increasing the housing stock in the country, banks may extend finance to public agencies and not private builders for acquisition and development of land, provided it is a part of the complete project, including development of infrastructure such as water systems, drainage, roads, provision of electricity, etc. Such credit may be extended by way of term loans. The project should be completed as early as possible and, in any case, within three years, so as to ensure quick re-cycling of bank funds for optimum results. If the project covers construction of houses, credit extended therefore in respect of individual beneficiaries should be on the same terms and conditions as stipulated for direct finance.

It has been observed that while financing real estate developers, certain banks were found to be valuing the land for the purpose of security, on the basis of the discounted value of the property after it is developed, less the cost of development.  This is not in conformity with established norms.  In this connection, it is advised that banks should have a Board approved policy in place for valuation of properties including collaterals accepted for their exposures and that valuation should be done by professionally qualified independent valuers.  As regards the valuation of land for the purpose of financing of land acquisition as also land secured as collateral, banks may be guided as under:

  1. Banks may extend finance to public agencies and not to private builders for acquisition and development of land, provided it is a part of the complete project, including development of infrastructure such as water systems, drainage, roads, provision of electricity, etc.  In such limited cases where land acquisition can be financed, the finance is to be limited to the acquisition price (current price) plus development cost.  The valuation of such land as prime security should be limited to the current market price.
  2. Wherever land is accepted as collateral, valuation of such land should be at the current market price only.

3.2.4   Terms and Conditions for Lending to Housing Intermediary Agencies

  1.        i.            In order to enhance the flow of resources to housing sector, term loans may be granted by banks to housing intermediary agencies against the direct loans sanctioned/ proposed to be sanctioned by the latter, irrespective of the per borrower size of the loan extended by these agencies.
  2.      ii.            Banks can grant term loans to housing intermediary agencies against the direct loans sanctioned/proposed to be sanctioned by them to Non-Resident Indians also. However, banks should ensure that housing finance intermediary agencies being financed by them, are authorised by RBI to grant housing loans to NRIs as all housing finance intermediaries are not authorised by RBI to provide housing finance to NRIs.
  3.   iii.            Banks have freedom to charge interest rates to housing intermediary agencies without reference to Benchmark Prime Lending Rates (BPLR) upto June 30, 2010.  Under the Base Rate System effective from July 1, 2010, all categories of loans will be priced with reference to Base Rate which is the minimum interest rate for all loans.

3.3 Term Loans to Private Builders

3.3.1 In view of the important role played by professional builders as providers of construction services in the housing field, especially where land is acquired and developed by State Housing Boards and other public agencies, commercial banks may extend credit to private builders on commercial terms by way of loans linked to each specific project.  However, the banks are not permitted to extend fund based or non-fund based facilities to private builders for acquisition of land even as part of a housing project.  The period of credit for loans extended by banks to private builders may be decided by banks themselves based on their commercial judgement subject to usual safeguards and after obtaining such security, as banks may deem appropriate. Such credit may be extended to builders of repute, employing professionally qualified personnel. It should be ensured, through close monitoring, that no part of such funds is used for any speculation in land.

Care should also be taken to see that prices charged from the ultimate beneficiaries do not include any speculative element, that is, prices should be based only on the documented price of land, the actual cost of construction and a reasonable profit margin.

3.3.2   It is advised that banks should adhere to the National Building Code (NBC) formulated by the Bureau of Indian Standards (BIS) in view of the importance of safety of buildings especially against natural disasters. Banks may consider this aspect for incorporation in their loan policies. Banks should also adopt the National Disaster Management Authority (NDMA) guidelines and suitably incorporate them as part of their loan policies, procedures and documentation.

3.3.3   Incorporating clause in the terms and conditions to disclose in Pamphlets / Brochures / advertisements information regarding mortgage of property to the bank

In a case which came up before the Hon’ble High Court of Judicature at Bombay, the Hon’ble Court observed that the bank granting finance to housing / development projects should insist on disclosure of the charge / or any other liability on the plot, in the brochure, pamphlets etc., which may be published by developer / owner inviting public at large to purchase flats and properties. The Court also added that this obviously would be part of the terms and conditions on which the loan may be sanctioned by the bank.Keeping in view the above, while granting finance to specific housing / development projects, banks are advised to stipulate as a part of the terms and conditions that:

  1.        i.            the builder / developer / company would disclose in the Pamphlets / Brochures etc., the name(s) of the bank(s) to which the property is mortgaged.
  2.      ii.            the builder / developer / company would append the information relating to mortgage while publishing advertisement of a particular scheme in newspapers / magazines etc.
  3.   iii.            the builder / developer / company would indicate in their pamphlets / brochures, that they would provide No Objection Certificate (NOC) / permission of the mortgagee bank for sale of flats / property, if required.

Banks are also advised to ensure compliance of the above terms and conditions and funds should not be released unless the builder/developer/company fulfils the above requirements.

4.   HOUSING LOANS UNDER PRIORITY SECTOR

Banks may refer to the Master Circular on Lending to Priority Sector issued by Rural Planning and Credit Department.

5. RBI REFINANCE

Finance provided by the banks would not be eligible for refinance from Reserve Bank.

6.  CONSTRUCTION ACTIVITIES ELIGIBLE FOR BANK CREDIT AS HOUSING FINANCE

The following types of bank credit will be eligible for being treated as housing finance:

  1.        i.            Loans to individuals for purchase/construction of dwelling unit per family and loans given for repairs to the damaged dwelling units of families;
  2.      ii.            Finance provided for construction of residential houses to be constructed by public housing agencies like HUDCO, Housing Boards, local bodies, individuals, co-operative societies, employers, priority being accorded for financing construction of houses meant for economically weaker sections, low income group and middle income group;
  3.   iii.            Finance for construction of educational, health, social, cultural or other institutions/centers, which are part of a housing project and which are necessary for the development of settlements or townships;
  4.    iv.            Finance for shopping complexes, markets and such other centers catering to the day to day needs of the residents of the housing colonies and forming part of a housing project;
  5.      v.            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;
  6.    vi.            Bank credit given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies;
  7. Finance provided to–
    1.                              a.            the bodies constituted for undertaking repairs to houses, and
    2.                             b.            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;
  8. Housing finance provided by banks for which refinance is availed of from National Housing Bank (NHB);
  9.   ix.            Investment in the guarantee/non-guaranteed bonds and debentures of NHB/HUDCO in the primary market, provided investment in non-guaranteed bonds is made only if guaranteed bonds are not available.

7. CONSTRUCTION ACTIVITIES NOT ELIGIBLE FOR BANK CREDIT

7.1   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.

7.2   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. Even in respect of projects undertaken by corporate bodies, as defined above, banks should satisfy themselves that the project is run on commercial lines and that bank finance is not in lieu of or to substitute budgetary resources envisaged for the project. The loan could, however, supplement budgetary resources if such supplementing was contemplated in the project design. Thus, in the case of a housing project, where the project is run on commercial lines, and the Government is interested in promoting the project either for the benefit of the weaker sections of the society or otherwise, and a part of the project cost is met by the Government through subsidies made available and/or contributions to the capital of the institutions taking up the project, the bank finance should be restricted to an amount arrived at after reducing from the total project cost the amount of subsidy/capital contribution receivable from the Government and any other resources proposed to be made available by the Government.

7.3   Banks had, in the past, sanctioned term loans to Corporations set up by Government like State Police Housing Corporation, for construction of residential quarters for allotment to employees where the loans were envisaged to be repaid out of budgetary allocations. As these projects cannot be considered to be run on commercial lines, it would not be in order for banks to grant loans to such projects.

8. REPORTING

Banks should compile the data relating to Housing Finance at half-yearly intervals on the lines of format given in Annex and keep it ready for being made available to the bank’s internal inspectors/RBI’s inspectors.

9. HOME LOAN ACCOUNT SCHEME (HLAS) OF NHB

9.1   Foreclosure of Loans Obtained from Other Sources

9.1.1   Under the HLAS, a member of HLAS is eligible for a loan after subscription to the scheme for a minimum period of 5 years. The member has to declare while joining the scheme/availing loan that he/ she does not own a house/flat. However, a member may acquire a house or a flat from a public agency/co-operative/ private builder by obtaining a loan from a bank at the normal rate of interest or from friends and relatives or through a hire-purchase scheme of Housing Board/ Development Authority. Thereafter, when the member becomes eligible for a loan under HLAS, he/she may approach the bank for such a loan to repay the loan(s) raised earlier from other sources.

9.1.2   There is no objection to bank loans under HLAS being utilised for foreclosing loans secured earlier from other sources, as a special case.

9.2   Classification of Deposits/Loans under HLAS

Under HLAS, the participating bank is required to accept deposits on behalf of NHB and make use of these deposits by way of refinance under any scheme approved by NHB from time to time. The surplus funds, if any, not so utilised (i.e. excess of deposits over refinance) can either be remitted by the participating bank to NHB or retained by it, subject to compliance with the statutory reserve requirements as under:

  1.        i.            The deposits under the HLA Scheme are on a recurring basis; and they should be treated as ‘time’ liabilities, subject to reserve requirements under Section 42(1) of the Reserve Bank of India Act, 1934 as also under Section 24 of the Banking Regulation Act, 1949 and included under item II (a) (ii) of Form ‘A’.
  2.      ii.            In terms of sub-clause (ii) of clause I of the Explanation to Sub-Section (1) of Section 42 of the RBI Act, as amended by clause 3 of the Second Schedule to the National Housing Bank Act, 1987, ‘liabilities’ will not include any loan taken from NHB. Hence, the deposits utilised as refinance from NHB should be deducted from the total deposits received under the HLA Scheme while including the amount under item II (a) (ii) of Form ‘A’.

10. BANK’S EXPOSURE TO REAL ESTATE SECTOR

While the development of real estate is welcome, there is a need for the banks to curb the excessively risky lending by exercising selectivity and strengthening the loan approval process.  Banks should ensure that the borrowers should have obtained prior permission from government/local governments/other statutory authorities for the project, wherever required.  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.

11.  RISK WEIGHT ON HOUSING FINANCE

Banks may refer to Master Circular on Prudential guidelines on Capital Adequacy and Market Discipline – Implementation of the New Capital Adequacy Frame Work.

12. Loan to Value ( LTV) Ratio

In order to prevent excessive leveraging, the LTV ratio in respect of housing loans should not exceed 80 per cent. However, for small value housing loans i.e. housing loans up to Rs. 20 lakh (which get categorized as priority sector advances), the LTV ratio should not exceed 90 per cent.

13.  DELHI HIGH COURT ORDER ON UNAUTHORISED CONSTRUCTION

The Monitoring Committee constituted by the Hon’ble High Court of Delhi regarding Unauthorised Construction, Misuse of Properties and Encroachment on Public Land, has issued the following directions for immediate compliance by the banks/ Financial Institutions.

A. Housing Loan for building construction

  1.        i.            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.

 

  1.     ii.            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.

 

  1.  iii.            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.

B. Housing Loan for purchase of constructed property/ built up property

  1.        i.            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.

 

  1.      ii.            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.

C. Unauthorised colonies

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.

D. Commercial Property

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.

14. TERMS AND CONDITIONS FOR BANKS’ INVESTMENT IN MORTGAGE BACKED SECURITIES (MBS)

14.1   Banks’ investments in MBS should satisfy the following terms and conditions:

(i) The right, title, and interest of an HFC in securitised housing loans and receivables there under should irrevocably be assigned in favour of a Special Purpose Vehicle (SPV) / Trust.

(ii) Mortgaged securities underlying the securitised housing loans should be held exclusively on behalf of and for the benefit of the investors by the SPV/Trust.

(iii) The SPV or Trust should be entitled to the receivables under the securitised loans with an arrangement for distribution of the same to the investors as per the terms of the issue of MBS. Such an arrangement may provide for appointment of the originating HFC as the servicing and paying agent.  However, the originating HFC participating in a securitisation transaction as a seller, manager, servicer or provider of credit enhancement of liquidity facilities,

  1. shall not own any share capital in the SPV or be the beneficiary of the Trust used as a vehicle for the purchase and securitisation of assets. Share capital for this purpose shall include all classes of common and preferred share capital.
  2. shall not name the SPV in such manner as to imply any connection with the bank.
  3. shall not have any directors, officers, or employees on the board of the SPV unless the board is made of at least three members and where there is a majority of independent directors. In addition, the official (s) representing the bank will not have veto powers.
  4. shall not directly or indirectly control the SPV, or
  5. shall not support any losses arising from the securitisation transaction or by investors involved in it or bear any of the recurring expenses of the transaction.

(i) The loans to be securitised should be loans advanced to individuals for acquiring /constructing residential houses which should have been mortgaged to the HFC by way of exclusive first charge.

(ii) The loans to be securitised should be accorded an investment grade credit rating by any of the credit rating agencies at the time of assignment to the SPV.

(iii) The investors should be entitled to call upon the issuer-SPV to take steps for recovery in the event of default and distribute the net proceeds to the investors as per the terms of issue of MBS.

(iv) The SPV undertaking the issue of MBS should not be engaged in any business other than the business of issue and administration of MBS of individual housing loans.

(v) The SPV or Trustees appointed to manage the issue of MBS should have to be governed by the provisions of Indian Trust Act, 1882.

14.2 If the issue of MBS is in accordance with the terms and conditions stated in above paragraph and includes irrevocable transfer of risk and reward of housing loan assets to the Special Purpose Vehicle (SPV) / Trust, investment in such MBS by any bank would not be reckoned as an exposure on the HFC originating the securitised housing loan. However, it would be treated as an exposure on the underlying assets of the SPV/ Trust.
Published

51 thoughts on “HOME LOANS AND RBI GUIDELINES ON 01-07-2011-READ COLUMN 13 FOR HOME LOAN CONDITIONS AND DIRECTIONS TO ALL THE BANKS BY THE RBI———————————— READ THE DELHI HIGH COURT ORDER ON ILLEGAL BUILDING AND ITS EFFECTS ON HOME LOANS AND RBI DIRECTIONS———-BEFORE BUYING ILLEGAL BUILDINGS”

  1. Sir,

    I am a housing loan customer of ICICI Bank with loan bearing Nos. LBVPM00000879211 AND LBVPM00000879215. I am paying the EMIs regularly since then the loan is taken. At present I want to fore close the total loan amount. When I approached the Bank authorities, I have to pay the penalty to fore close the loan. It is requested that the necessary instructions may please be given to the Bank authorities to allow me to foreclose the loans taken with out penalty, if I am eligible. The copy of the same may please be send to me also.

    1. Dear Sir,
      National Housing Bank is the regulator for the home loans. NHB has recently issued directives to all the banks not to charge or collect preclosure or foreclosure charges and even the RBI has issued some guidelines in this regard.
      Please contact the NHB and obtain the directives in this regard and submit the same along with a letter to the ICICI Bank.

      Please contact the banking ombudsmen with your grievance or contact the nodal officer of the ICICI BANK or the NHB – Bangalore.

      ICICI Bank limited ICICI Bank Towers Bandra- Kurla Complex Mumbai-400051 Sh Ripudaman Bandral 022-26537771
      NODAL OFFICERS OF ICICI BANK

      NATIONAL HOUSING BANK
      Shri Sanjeev Srivastava
      Regional Resident Representative
      Mobile No.+91-81052-72555
      National Housing Bank
      Representative Office- Banglore
      F- Block, II Floor
      CBAB Complex,
      Cauvery Bhawan, K.G. Road,
      Banglore- 560009
      Phone No. +91-80-22711228
      TeleFax +91-80-22131157
      e-mail : roblr@nhb.org.i
      ecopackindia team

  2. I have purchased two house with Housing Finance through a Bank. Now I have closed one Housing Loan by Foreclosure of the same.
    Can I further proceed with another housing Loan for my Third House? Some one told me that as per RBI Guideline, any individual cannot obtain Housing finance to Third house. Is this true?

  3. I have applied for a homeloan with HDFC by complying all the requisites, since I was not aware I kept the seed money in liquid cash and as advised by them that seed money i.e. loan applicant upfront share 15% can not be paid in cash as per RBI directive as such I deposited the money in my S.B Account and made D.D in favour of Owner on the same day; now they are asking for declaration for source of money for same day deposit of 1,25,000 and D.D made on the same day S.B Account is having still more than 50,000/- deposit. I have made adequate submission on the source of money.But Still I want to Know can they I mean HDFC reject the application on the issue; I am looking for RBI guideline on the issue of Seed Money paying method, if possible please quote me the circular No.

    1. Dear Sir,
      This is a peculiar case.
      You must approach the BANKING OMBUDSMEN for the redressal of your grievance. Please contact all the available documentary evidence before the OMBUDSMEN of your area, immediately and seek solution.
      ecopackindia team

  4. i have taken aHome loan from SBI now i wanted to sell the house and go for a bigger house. When i wantd to foreclose my loan, sbi is demanding that i should pay penalty of 2% on the value of the EMI payable for the remaining tenure. The source of my money is the advance taken from the buyer. please advise. i feel the customrs are taken ride even by the nationalised banks.

    1. Dear Sir,
      Use todays application to initiate proceedings before the Banking Ombudsman and seek relief.
      Best Wishes,
      ecopackindia team

    1. Dear sir,
      If the loan is availed for housing(one) unit and if the amount borrowed is less than 15 lakhs, the govt has directed the lending institutions to provide 1% subsidy or subvention.
      ecopackindia team

  6. Dear Sir
    This 1 % subsidy in interest or subvention is applicable for other private bank like Axis bank of india or hdfc bank for less than 15 lakh of loan.
    pl gave me feedback.
    Thanks with regards.

    1. Dear Sir,
      Total loan must be within Rs15 lakhs(only one property for one individual) and the total value of the property must not exceed Rs25 lakhs, conditions are applicable. It applies to all the banks controlled by the regulator.
      ecopackindia team

  7. Hi I am Mrs Anand,
    We have taken housing loan from ING Vysya Bank in june 2008 now i want to shift my housing loan o Axis Bank as are offering better rate of interest. so I have request for foreclose from ING. as per the them i am still liable to pay 2% penalty of total O/s amt……this is nil if you pay from your own funds or if you sell your property.please guide me.plz copy me the letter issued to ING from RBI for the current rules for foreclose or transfer of HL from one bank to other bank

    1. Dear Mrs.Anand,
      The foreclosure of home loan will not attract any penal charges as per the recent Government, RBI and Regulator-NHB(National Housing Bank) DIRECTIVE But, some banks are collecting/demanding this fee or charge as per the agreement signed earlier. We do not have the copy of the letter issued. But, the Directive from the regulator is applicable for all the banks. You may seek the assistance from NHB on this issue and demand the withdrawal of the charges.
      The directives of the Govt is all over the net.
      ecopackindia team

  8. dear sir,
    I have taken home loan from HDFC Bank last year, I want to repay of some gross amount to lower my EMI, pl tell me how much max.% can be paid.

    1. Dear Sir,
      As far as we know, you can pay any amount. Check your loan agreement.
      ecopackindia team

  9. Hello sir
    1% susidy will applicable only for the rural areas.Or it will applicable for under municipality area as well.Because my house will come under muncipality area.My bankers (HDFC) Told me that this subsidy will applicable for rural areas not to you.Can you please help me on this.

    1. Dear Sir,
      The notification is general in nature and is applicable for all the properties irrespective of rural or urban areas. For more details, you may seek the help from the regulator the NHB and RBI.

      Please obtain a letter to this effect from your banker for future reference.

      ecopackindia team

      GUIDELINES FROM THE NATIONAL HOUSING BANK.
      THIS SCHEME IS VALID UP TO 31-03-2012.

      NATIONAL HOUSING BANK
      Sub: Scheme of 1% interest subvention on housing loans upto 15 lakh with cost of the house not exceeding 25 lakh – Guidelines regarding
      In order to stimulate demand for credit for housing in the middle & lower income segment of population in the country, the Government has implemented an interest subvention of 1% on all individual housing loans of upto 10 lakh, provided the cost of the unit does not exceed 20 lakh. For FY 2011-12 the Scheme has been extended for housing loan upto 15 lakh, where the cost of house does not exceed 25 lakh. The Scheme recognizes that cut in interest rates has an important role to play in reducing EMIs of borrowers and creating additional demand for housing. All regions of the States & Union Territories in the country, including rural & urban areas will be covered under the Scheme.
      THE SCHEME
      Objective – The objective of the Scheme is to provide interest subsidy on housing loan as a measure to generate additional demand for credit and to improve affordability of housing to eligible borrowers in the middle & lower income groups. The Scheme is expected to provide relief to prospective home owners and improve home ownership in the specified target segment.
      Eligibility – Interest subvention of 1 percent will be available on housing loans upto 10 lakh to individuals for construction/purchase of a new house or extension of an existing house / resale of a flat or House, provided the cost of construction/price of the new house/extension does not exceed 20 lakh. For FY 2011-12 interest subvention of 1% will be available for housing loans upto 15 lakh, provided the cost of house does not exceed 25 lakh are eligible under the Scheme. All such loans sanctioned and disbursed, during the period of the Scheme shall be eligible for the said interest subsidy.
      Duration of the Scheme – The Scheme is in operation for a period starting from 1st October, 2009 to 31st March, 2012.
      Interest subsidy – Subsidy of 1 per cent will be defined as reduction in interest rate by 100 basis points per annum from the existing rate of interest for a particular amount & tenor. It will be applicable to the first twelve instalments of all such loans sanctioned and disbursed during the currency of the Scheme and will be computed for 12 months on the disbursed amount. The subsidy amount will be adjusted (after receiving subsidy from Government of India) in the principal outstanding, irrespective of whether the loan is on fixed or floating rate basis.
      Implementing Agencies (IAs) – The Scheme will be implemented through Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs).
      Nodal Agency –NHB will be the common Nodal Agency for this Scheme for SCBs and HFCs.
      Publicity & Awareness Generation – The IAs will give wide publicity to the Scheme bringing out its salient features & benefits to the borrowers.
      Terms for loan and subsidy:-
      1. The interest subsidy of 1 percent per annum will be admissible for the first year on the amount sanctioned and disbursed against the eligible housing loans. In case the loan amount is disbursed in parts (instalments), the interest subsidy will be calculated for one year and claimed separately for every installment of the loan disbursement falling within the operating period of the Scheme.
      2. The interest subsidy will be calculated on the interest chargeable at the time of disbursement of the loan.
      3. The agreed rate of interest would be arrived at by the IAs keeping in view the NHBs guidelines, if any, for loans upto 10 lakh (for FY 2011-12 upto 15 lakh).
      4. The borrowers may choose fixed or floating rate of interest.
      5. The mode of disbursement of the loan will be decided by the lending IAs as per the requirement of the borrowers.
      6. The IAs will deduct the subsidy amount from the principal loan amount of the borrower (after receiving it from Nodal agency) and charge interest on the net amount of loan at the agreed rate of interest.
      7. The amount of reduction in the principal amount as a result of interest subsidy will be explained to the borrower by the SCBs/HFC officials. IAs will provide each borrower, covered under the Scheme, a statement which will make him/her understand the amount given as subsidy, how the subsidy has been adjusted and the impact of the subsidy on her/his EMIs.
      8. It will be the responsibility of the IA concerned to ensure security of the loan amount.
      9. The IAs will follow the appraisal, documentation, etc., as per their approved policies and procedures including those for risk assessment.
      10. In case a loan is foreclosed before one year the subsidy amount will be received from borrowers and returned to Government through Nodal Agency.
      11. In case of default/account turning NPA the subsidy will be provided to borrower on pro-rata basis and remaining subsidy will be returned to Government of India through nodal agency. In case account turns NPA after 12 months, subsidy would not be returned, as Scheme provides 1% interest subsidy for 12 months only.
      12. The benefit of interest subvention is restricted to only one housing unit for a single eligible borrower.
      Claim Admissibility – After sanctioning and disbursing the eligible loans, the IAs will claim disbursement of subsidy from the Nodal Agency by submitting their claims on the prescribed format on monthly basis in hard and soft copy both. The subvention amount on the disbursed loan amount will be sanctioned to the IAs by the Nodal Agency on monthly basis on receipt of the claim and the necessary information in the prescribed format.
      Final reimbursement claim on Government – The final quarterly reimbursement claim format the IAs can be expected to be in the quarter immediately after completion of the Scheme.
      Release of Funds from Government of India – The Government of India will release the subsidy amount to the Nodal Agency based on demand for sanction of subsidy received from the Nodal Agency on quarterly basis.
      Utilisation Certificates – The IAs will be required to ensure proper end-utilization of the funds and to submit utilization certificates, to their respective Nodal Agency against the amount of the interest subsidy released to them. The utilization certificate will be submitted in the prescribed form.
      Inspection of Accounts – The IAs will flag all the loans covered under the Scheme in their books of accounts for the purpose of inspection by the specified authority.
      Monitoring and Evaluation – All SCBs and HFCs will submit a monthly consolidated return to the National Housing Bank, specifying the number of accounts, amount of loan disbursed, subvention claimed, etc. as per the formats prescribed by NHB for the purpose. The NHB will scrutinise the monthly statement and send it the Department of Financial Services (DFS), Ministry of Finance.
      The impact of the Scheme will be evaluated through the Nodal Agency at the end of the operation of the Scheme.
      Implementation and power to remove difficulties –
      If any doubt arises on the interpretation of any paragraph of this Scheme or any instructions issued there under, the Central Government shall resolve the doubt and the decision of the Central Government shall be final.
      If any difficulty arises in giving effect to the provisions of the Scheme or any instructions issued there under, the Central Government may issue order on anything which appears to it to be necessary or expedient for the purposes of removing the difficulty.

  10. DEAR SIR,
    I HAVE MY HOUSING LOAN WITH DCB BANK PUNE BRANCH
    WHEN I CLOSE THE LOAN AFTER REPAYMENT OF 4 YEAR THEY HAVE DEMAND FOR FORECLOSER CHARGES
    CURRENTLY WE HAVE PAID
    KINDLY GUIDE US FOR REAMBUS

    1. Dear Sir,
      It is difficult to get the refund. Please check the documents signed by you at the time of availing the loan and at the time of repayment.
      ecopackindia team

  11. Pradyut

    Dear sir,

    Please confirm me that the bank can disbursh that amount which he received demand from builders or only that amount which is confirm by me to the bank, whather if my confirm amount is below than the builders demand amount

    1. Dear Sir,
      We do not have any details about your loans and hence, cannot confirm nor make any remarks.
      ecopackindia team

  12. Hello Sir/Madam,

    I have a land loan with ICICI bank, we want to shift our loan from ICICI to SBM which is a nationalised bank, is shifting of land loan possible from bank to bank according to RBI rules.

    1. Dear Ms.Shweta,

      YES.
      Please check with both the banks about the shifting charges, new interest rates and other relevant charges before shifting.
      Take Care.
      ecopackindia team

  13. Hi Sir/Madam,
    I am planning to purchase a flat . as inquiry done from different sources of banks for loan i have come to know that as per some banks 80% of the loan amount does not include registration and stamp duty and whereas some banks offers this facility… I would also like to know if nationalized banks pay only 75% of the loan amount if it comes above 20 lakes and within 30 lakes excluding registration and stamp duty as per RBI guidelines.

    1. Dear Sir,
      Irrespective of the volume of the loan amounts, the stamp duty and registration fee will not be included in the total value of the property for sanctioning the home loan.
      ecopackindia team

  14. I have taken an amount of Rs 35 lakhs as Home Loan from HDFC Hyderabad (AC No. 603936246) and at the time of disbursal, the HDFC manager had asked me to pay an extra EMI as my EMI deduction is delayed due to reaons beyond my control The same was disclosed at the time of application to HDFC. Already EMI of Rs 45318 was deducted from my March, 2012 salary and HDFC is charging an amount of Rs 340 per each week and showing same in the default payment balance. I have approached HDFC Main Branch at Hyderbad to accept the payment fo EMI thru ECS, but they are telling Since my Office ISRO/NRSC had an agreement with HDFC, they can not accept the same. I request you to inform me, whetehr loan customer had no other choice as because ISRO/NRSC had an agreement with HDFC.

    kindly advice me me in this regards

    1. Dear Sir,

      Please consult ISRO/NRSC and seek clarification and instruction to the bank to collect and stop the default fine. Your credit rating will take a nosedive, it you pay the default fine.
      Obtain the details from the bank in writing about their averments and submit the same to your office and seek clarification and a direction or request to the banker to resolve this issue. if this does not work out, approach the banking ombudsmen with all the relevant details and documents. It will be resolved.
      ecopackindia team

  15. Dear Sir, I have taken an amount of Rs 3750000 lakhs as Home Loan from Bank of India Varanasi, in this condition same Bank had compled me to insure the purchased house, therefore I want to know whether its mandatory or not to get the same insured? Dr. Ashutosh kumar yadav, varanasi.

    1. Dear Sir,
      It is not mandatory. The Banks and Insurance companies together create terrorised scare on the consumers and compels them to buy insurance at an abnormal cost.
      But, positively, life insurance is a must to the extent of the loan. Buy the term insurance, which is cheaper.
      ecopackindia team

    1. Dear Sir,
      It is applicable for BDA sites with lease and other sites bought with home loan(composite loan).
      ecopackindia team

  17. I have already a home loan in Allahabad bank,but now intrest rate of home loan in allahabad bank is very high.So i want to transfer my home loan from allahabad bank to union bank,but the problem is, allahabad bank demands one percent(1%) amount of my home loan as pre-closure charges.
    I want to know is it legal as per current RBI rules?

    1. YES. There are no preclosure charges, but if you want transfer or shift, the fee is applicable.
      ecopackindia team

  18. Sir,
    I have taken a loan of Rs 1429802 in July 2010. Intrest rate changes for my loan has been as follows. Has the intrest rate changed so frequently?

    Oct-11 12
    Aug-11 11.75
    Jun-11 11.25
    Apr-11 10.75
    Mar-11 10.5
    Jan-11 10.25
    Sep-10 9.5

    Please sugggest.

    1. Dear Sir,
      Please scrutinise the banks offer/approval letter and the interest rate mentioned thereon. It appears to be a floating rate. Yes. Floating rates change very often, but it is very important that the borrower must keep a vigil on it.
      Request for the information from the bank and also a statement on the emi, with break up of interest and the capital repayment for the period.
      ecopackindia team

  19. Dear Sir
    I have taken home loan of 12 lacs and disbursed in Dec-12 , can I eligible to avail 1 % subsidy in interest for all 12 month or only up to march-12

  20. Dear Sir
    I am transferring my home loan from ING to SBI the loan is already sanctioned by SBI, now for dismemberment SBI is asking for NOC and POA confirmation from Builder , and Builder is refusing give anything before getting a No Due letter from ING,
    I am stuck in this process, Builder said that they can only give a two liner latter stating they will issue a NOC after receiving No Due latter from ING.

    Please advice. Thank you

    1. Dear Sir,

      The ING must issue the NOC upon the completion of the formalities and we do not understand why POA is required from the builder?
      Your input is insufficient and lack clarity. What is the status of the apartment? constructed and occupied? if so POA is not required. If it is under construction, you must obtain the clearance or POA from the builder too.
      Please consult your advocate with complete details.
      EP Team

  21. Hello sir,

    Thanks for nice guidence.

    me and my wife has taken loan for house as society flat in Ghaziabad UP which is under construction.
    we have got sanctioned a loan of the amount Rs. 25 lanks on the July 11 from Axis bank and till only 3 lakhs is disbursed and rest we paid our self aprox 7 lakhs. and paying only intrest to the bank for 3 lakhs only.

    sudden of all we received an sms from the bank that your EMI of 27 Thousand approx is due..

    How ever we planned to have the loan only 10 lakhs.

    kindly help us in this regards. as bank is taking high EMI and we are still in the rented house.

    What is the process . does bank will calculate the intrest on all the ammount ie 25 lakhs.. what to do as we wanted only 10 lakhs loan.

    Regards

    Sandeep and Rekha

    1. Dear Sir,

      Please check the Home Loan Agreement signed and check all the conditions and clauses in it. There will be a clause on repayment, but as we understand, you have signed the home loan agreement for Rs25 lakhs and the bank might have calculated the emi for the same. You may immediately contact your banker and appraise them that you would be actually availing only Rs10,00,000/- only and modify/incorporate the changes or make necessary changes and pay emi for Rs10 lakhs only.

      The emi sms sent to you is for Rs25 lakhs, now you have to either cancel or reduce the loan amount proposed to be borrowed.
      Contact the Bank with all your documents and submit an application for the changes required by you and demand the revision of the emi.

      Please go through all the loan documents, which you have signed or will be signing and then, if you are satisfied, avail the loan. If you read all the conditions, you will be perplexed and shocked to know that the home loan comes with a bang on the head. Keep a copy of all the documents signed and submitted to the bank for future reference.

      Take care,
      EP Team

  22. URGENT SUPPORT REQUIRED – KINDLY HELP
    Dear Sir,
    I am vivek (Email – vivekramaiah@gmail.com). I request your support to guide me please.
    Problem – i purchased a composite loan (Plot + House construction) in Bangalore from IDBI Bank on Aug 2013. The bank promised me a ROI of 10.25%, but on day of registration, told me that ROI will be 10.5%. I was helpless & had to sign on the bank papers for the said ROI… I felt cheated. The total loan approval was for 65 lakhs & loan disbursed was for 38.2 lakhs (for plot only). Now, i no longer want to continue in IDBI bank & want to changeover to other bank. On request to IDBI for preclosure of my loan, the bank says as i am closing the loan within 24 months, i have to pay additional interest of 4% over & above the Base rate to be levied & no foreclosure charges. They say that considering above, i need to pay 34K (for the 4% above) as additional amount if i need to close the loan. Unfortunately, they showed me paper where i have signed the same 🙁 which i didnot realise at the time of loan approval. But, is above demand from the bank justified ? Does RBI / NHB say it is legal for bank to demand the above amount please ? The bank which is ready to take-over my loan from IDBI says i donot need to pay above amount as RBI says banks cannot charge such amounts to customers…can you kindly confirm what the rule says please ? I feel harrased….kindly support to reply urgently as i need to close my loan immediately….Can you kindly mark a copy of your reply to vivekramaiah@gmail.com ?? Regards, Vivek

    1. Dear Sir,

      We shall revert to you soon. To the best of our experience and knowledge, the foreclosure charges need not be paid, but, as per the loan agreement signed, you might be compelled to pay for it. The case has to be examined thoroughly, before forwarding any recommendtion.

      EP Team

  25. I have booked a flat at 12th in Ghaziabad and loan disbursed from HDFC bank in May-11. Now after 2.5 year when I asked to the builder for possession they always exceed the time.When I inquired then found that they don’t have approvals above 10th floors.This is a shocking news for me. How bank can disbursed the loan for unauthorized floors and I am continuously paying EMIs. I want to know how I can handle this situation? what is the possibilities from bank or builder site to compensate?
    Thanks
    AK

    1. Sir,
      There seems to be a serious lapse and violation of by laws of building plan. You may initiate appropriate legal action on the builder and examine the loan sanctioned by the bank, before embarking on the suits.

      Examine the approvals.
      Examine the bank loan documents, which you have signed.
      Examine the sale agreement and construction agreement.
      You can initiate both civil and criminal proceedings against the builder, if, whatever you have stated is true.
      You may also lodge a complaint to redress your grievance with the banking ombudsmen of your city.
      You may initiate proceedings in the consumers forum too.
      Avail the services of an experienced advocate.
      EP Team

  26. i have taken home loan from DCB in 2004 at fix rate of interest.
    neither it was told nor discussed at any time that ROI will be changed after three years and fix will be converted into floating.
    in 2007 DCB convereted ROI at floating rate of interest.
    no where it is mentioned in the Loan Agreement.
    i have also wrote to Banking ombudsman but it seems that BO is biased towards the Bank.
    i have filed a civil suit in Tis hazari Court delhi.
    the bank taking the plea of RBI rules in this matter.
    what remedy i will get from RBI.

    1. Dear Sir,

      As the subject is before the judiciary, it is sub-judice to discuss or pass remarks. Hence, we regret that we might not be able to express our views.

      But in general,

      THERE IS NO FIXED TENURE HOME LOANS. IT IS FIXED FOR A TERM, THEREAFTER IT IS FLOATING.
      READ YOUR HOME LOAN AGREEMENT CAREFULLY AND DISCUSS IT WITH YOUR ADVOCATE.

      RBI has only advisory and supervisory role and might not provide any remedy.

      EP Team

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