RBI frowns on 80:20 housing loan schemes

RBI has advised banks 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. While yesterday's notification talks only about banks, we believe that it will be applicable to nbfcs and housing finance companies as well.

• ICICI Bank said that such schemes are only ~2-3% of their total home loans.
• LICHF has said that they do not finance any such schemes as in their view these are akin to developer financing and they are not doing any developer financing at the moment.
• HDFC says that they sanction loans based only on the borrower's ability to may and all their disbursements are construction linked and they do not make upfront disbursements. HDFC had highlighted this as risk for the industry in their 2013 annual report.

RBI has issued a notification with reference to certain innovative housing loan schemes introduced by banks in association with developers/builders where in upfront disbursals are made of sanctioned individual housing loans to the builders without linking the disbursals to various stages of construction of housing project and / or interest/EMI on the housing loan availed of by the individual borrower is serviced by the builders during the construction period/specified period. These loan products are popularly known by various names like 80:20, 75:25 Schemes