Master Circular – Housing Finance
To consolidate framework of rules/regulations and clarification on Housing Finance issued by Reserve Bank of India from time to time.
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.
Banks, with their vast branch network throughout the length and breadth of the country, occupy a very strategic position in the financial system and have an important role to play in providing credit to the housing sector.
Keeping in view the objectives of the National Housing Finance Policy of the Central Government, RBI had introduced a scheme of Housing Finance Allocation wherein every year, banks were required to achieve the prescribed target of ‘Housing Finance’ announced annually. The banks could deploy their funds under the housing finance allocation in any of the three categories, viz. direct finance, indirect finance, or investment in bonds of NHB/HUDCO, or combination thereof.
The allocation under the scheme was last announced for the year 2002-2003 and the scheme has since been discontinued.
Presently, banks have the freedom to evolve their own guidelines on various aspects of granting housing finance with the approval of their Boards.
2. VARIOUS REGULATIONS
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.