Housing Finance Regulations
The Reserve Bank of India (RBI) has consolidated previous instructions on housing finance into a master circular.
The scope of application includes regulations for acquisition of land, construction of buildings, and lending to housing intermediary agencies.
Acquisition of Land: Banks can finance land acquisition, but not for speculative purposes. Conditions include:
(i) Land should be for construction of a house/flat;
(ii) Loan should be for a maximum of 5 years;
(iii) Loan amount should not exceed 75% of the land cost;
(iv) Bank’s exposure should not exceed 10% of its net worth;
(v) Loan should be secured by a mortgage of the land;
(vi) Bank should ensure that the land is free from encumbrances;
(vii) Loan should be used only for the purpose of land acquisition;
(viii) Supplementary finance can be provided for construction.
Lending to Housing Intermediary Agencies: Banks can lend to housing finance institutions, housing boards, and private builders. Terms and conditions include:
(i) Financing of land acquisition;
(ii) Lending to housing finance institutions;
(iii) Lending to housing boards and other agencies;
(iv) Term loans to private builders;
(v) Adherence to guidelines on commercial real estate (CRE) exposure.
Quantum of Loan: The loan-to-value (LTV) ratio and risk weight percentage vary by loan category.
Chat with the Master Circular:
Download: Master Circular – Housing Finance