IMPORTANT GUIDELINES ON HOUSING FINANCE *

Banks deploy their funds under the housing finance allocation in any of the three categories, i.e. (i) direct finance, (ii) Indirect finance, (iii) Investment in bonds of NHB/H !"#, or combination thereof. 01. DIRECT HOUSING FINANCE !irect Housing $inance refers to the finance provided by banks to individuals or groups of individuals including co%operative societies for ac&uisition/construction of accommodation. Direct Housing Finance includes'

Bank finance e(tended to a person )ho already o)ns a house in to)n/village )here he resides, for buying/ constructing a second house in the same or other to)n/ village for the purpose of self occupation. Bank finance e(tended for purchase of a house by a borro)er )ho proposes to let it out on rental basis on account of his posting outside the head&uarters or because he has been provided accommodation by his employer. Bank finance e(tended to a person )ho proposes to buy an old house )here he is presently residing as a tenant. Bank finance granted only for purchase of a plot, provided a declaration is obtained from the borro)er that he intends to construct a house on the said plot, )ith the help of bank finance or other)ise, )ithin such period as may be laid do)n by the banks themselves. *upplementary finance (a) Banks may consider re&uests for additional finance )ithin the overall ceiling for carrying out alterations/ additions/repairs to the house/flat already financed by them. (b) In the case of individuals )ho might have raised funds for construction/ ac&uisition of accommodation from other sources and need supplementary finance, banks may e(tend 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.

0 .

INDIRECT HOUSING FINANCE $inance provided by )ay 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. *erviced plots can be sold by these agencies to co%operative societies, professional developers and individuals )ith a stipulation that the houses should be constructed thereon )ithin a reasonable time, not e(ceeding three years.

.1.

!ending to Housing Inter"ediar# Agencies

.1.1. !ending to Housing Finance Institutions

Banks may grant term loans to housing finance institutions taking into account (long% term) debt%e&uity ratio, track record, recovery performance and other relevant factors. It should be ensured that the housing finance companies+ total borro)ings, including deposits/debentures/bonds raised, loans and advances from banks or from financial institutions including any loans obtained from NHB, should not e(ceed ,- times of their net o)ned funds (i.e. paid%up capital and free reserves less accumulated balance of loss, deferred revenue e(penditure and intangible assets), as per NHB guidelines. !ending to Housing $oards and Ot%er Agencies Banks, )hile e(tending term loans to state level housing boards and other public agencies, evaluate the past performance of these agencies in the matter of recovery from the beneficiaries and may stipulate that the Boards )ill ensure prompt and regular recovery of loan instalments from the beneficiaries. Financing o' !and Ac(uisition Banks may provide finance by )ay of term loans to public agencies and not private builders for ac&uisition and development of land provided it is a part of the complete pro.ect, including development of infrastructure such as )ater systems, drainage, roads, provision of electricity, etc.. /he pro.ect should be completed as early as possible and, in any case, )ithin three years, so as to ensure &uick re%cycling of bank funds for optimum results. 0herever land is accepted as collateral, valuation of such land should be at the current market price only. /erm 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 borro)er si1e of the loan e(tended by these agencies. Banks can grant term loans to housing intermediary agencies ()ho are authori1ed to provide finance to N2Is by 2BI) against the direct loans sanctioned/proposed to be sanctioned by them to Non%2esident Indians also. interest rate for all loans ).e.f. 4,.45.64,4.

.1. .

.1.&.

.1.). Ter"s and Conditions 'or !ending to Housing Inter"ediar# Agencies

3ll categories of loans )ill be priced )ith reference to Base 2ate )hich is the minimum
.1.* Ter" !oans to +ri,ate $uilders

Banks may e(tend credit to private builders on commercial terms by )ay of loans linked to each specific pro.ect. Ho)ever, the banks are not permitted to e(tend any credit facilities to private builders for ac&uisition of land even as part of a housing pro.ect. Bank granting finance to housing / development pro.ects should insist, being part of terms 7 conditions, on disclosure of the charge / or any other liability on the plot, in the brochure, pamphlets etc., )hich may be published by developer / o)ner inviting public at large to purchase flats and properties.

.1.-. R$I REFINANCE


0&.

$inance provided by the banks )ould not be eligible for refinance from 2eserve Bank. CONSTRUCTION ACTI.ITIES E!IGI$!E FOR $AN/ CREDIT AS HOUSING FINANCE

8oans to individuals for purchase/construction of d)elling unit per family and loans given for repairs to the damaged d)elling units of families9 $inance provided for construction of residential houses to be constructed by public housing agencies like H !"#, Housing Boards, local bodies, individuals, co%operative societies, employers. :riority being accorded for financing construction of houses meant for economically )eaker sections, lo) income group and middle income group9 $inance for construction of educational, health, social, cultural or other institutions/centers, )hich are part of a housing pro.ect and )hich are necessary for the development of settlements or to)nships9 $inance for shopping comple(es, 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 pro.ect9 $inance for construction meant for improving the conditions in slum areas for )hich credit may be e(tended directly to the slum%d)ellers on the guarantee of the ;overnment, or indirectly to them through the *tate ;overnments9 Bank credit given for slum improvement schemes to be implemented by *lum "learance Boards and other public agencies9 $inance provided to <

(a) the bodies constituted for undertaking repairs to houses, and (b) the o)ners of building/house/flat, )hether occupied by themselves or by tenants, to meet the need%based re&uirements for their repairs/additions, after satisfying themselves regarding the estimated cost (for )hich re&uisite certificate should be obtained from an =ngineer/3rchitect, )herever necessary) and obtaining such security as deemed appropriate9 Housing finance provided by banks for )hich refinance is availed of from National Housing Bank (NHB)9

Investment in the guarantee/non%guaranteed bonds and debentures of NHB/H !"# in

the primary market, provided investment in non%guaranteed bonds is made only if guaranteed bonds are not available. CONSTRUCTION ACTI.ITIES NOT E!IGI$!E FOR $AN/ CREDIT

0).

"onstruction of buildings meant purely for ;overnment/*emi%;overnment offices, including >unicipal and :anchayat offices other than for activities, )hich )ill be refinanced by institutions like N3B32!. :ro.ects undertaken by public sector entities )hich are not corporate bodies.

"onstruction of residential &uarters for allotment to employees by corporations like *tate :olice Housing "orporation )here the loans )ere envisaged to be repaid out of budgetary allocations.

0*.

RE+ORTING

Banks should compile the data relating to Housing $inance at half%yearly intervals in the prescribed format and keep it ready for being made available to the bank+s internal inspectors/2BI+s inspectors. HO0E !OAN ACCOUNT SCHE0E 1H!AS2 OF NH$ Foreclosure o' !oans O3tained 'ro" Ot%er Sources

0-. -.1

3 member of H83* )ho does not o)n a house or a flat is eligible for a Bank loan after

subscription to the scheme for a minimum period of ? years to repay the loan(s) raised earlier from other sources for ac&uiring house or a flat from a public agency/co% operative/ private builder. /here is no ob.ection to bank loans under H83* being utili1ed for foreclosing loans secured earlier from other sources. Classi'ication o' De4osits5!oans under H!AS nder H83*, the participating bank is re&uired to accept deposits on behalf of NHB and make use of these deposits by )ay of refinance under any scheme approved by NHB from time to time. /he surplus funds, if any, not so utili1ed (i.e. e(cess of deposits over refinance) can either be remitted by the participating bank to NHB or retained by it, sub.ect to compliance )ith the statutory reserve re&uirements under *ection @6(,) of the 2eserve Bank of India 3ct, ,AB@ as also under *ection 6@ of the Banking 2egulation 3ct, ,A@A. $AN/7S E8+OSURE TO REA! ESTATE SECTOR

-.

06.

Banks should ensure )hile providing finance to real estate sector that the borro)ers

should have obtained prior permission from government/local governments/other statutory authorities for the pro.ect, )herever re&uired. !oan to .alue 1 !T.2 Ratio

09.

In order to prevent e(cessive leveraging, the 8/C ratio in respect of housing loans should not e(ceed D4 per cent. Ho)ever, for small value housing loans i.e. housing loans up to 2s. 64 lakh ()hich get categori1ed as priority sector advances), the 8/C ratio should not e(ceed A4 per cent. 0hile reckoning the 8/C, the components such as stamp duty, registration and other documentation charges may be e(cluded as these charges are not reali1able and conse&uently the margin/effectiveness of 8/C norm get diluted.
0:. DE!HI HIGH COURT ORDER ON UNAUTHORISED CONSTRUCTION Banks/$inancial Institutions are re&uired to comply )ith the directions of the >onitoring "ommittee constituted by the HonEble High "ourt of !elhi regarding nauthorised "onstruction, >isuse of :roperties and =ncroachment on :ublic 8and, as under'% A. Housing !oan 'or 3uilding construction

 Before sanctioning home loan by the Banks/$Is to an applicant, )ho o)ns a plot/land for
construction of a house, must provide a copy of the sanctioned plan by competent authority in favour of the applicant.

3n affidavit%cum%undertaking must be obtained from the applicant of home loan 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 applicant to obtain completion certificate )ithin B months of completion of construction, failing )hich the bank shall have the po)er and the authority to recall the entire loan )ith interest, costs and other usual bank charges. 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.

3n 3rchitect appointed by the bank must also certify at various stages of construction of

$. Housing !oan 'or 4urc%ase o' constructed 4ro4ert#5 3uilt u4 4ro4ert#

In cases )here the applicant approaches the bank/$Is for a credit facility to purchase the built up house/flat, it should be mandatory for him to declare by )ay of an affidavit%cum% undertaking that the built up property has been constructed as per the sanctioned plan and/or building bye%la)s and as far as possible has a completion certificate also. 3n 3rchitect 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%la)s. C. Unaut%ori;ed colonies

No loan should be given in respect of those properties )hich fall in the category of unauthori1ed colonies unless and until they have been regulari1ed and development and other charges paid. D. Co""ercial +ro4ert# No loan should also be given in respect of properties meant for residential use but )hich the applicant intends to use for commercial purposes and declares so )hile applying for loan.

(F *# 2"= ' 2BI >. "I2" 832 < updated upto 46.46.64,6)

o4o4o4o4o

/his overstates the realisable value of the property as stamp duty, registration and other documentation charges are not realisable and conse&uently the margin stipulated gets diluted. 3ccordingly, banks should not include these charges in the cost of the housing property they finance so that the effectiveness of 8/C norms is not diluted.