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Master Circular
Finance For Housing Schemes
1 GENERAL
1.1 The role of primary (urban) co-operative banks (PCBs) in providing housing
finance has been reviewed from time to time. These banks, with their vast
network, occupy a very strategi position in the financial system and have an
important role to play in providing credit to the housing sector. Further, housing
finance to specified categories up to prescribed limits is
treated as priority sector lending, and the need for PCBs providing credit to priority sector has
come to be increasingly recognised consistent with the social objectives placed
before the banking system.
1.2 Therefore, with a view to enabling the PCBs to play a more positive role in
providing finance for housing schemes, particularly to the weaker sections of
the community, these banks are permitted to grant loans for housing schemes
up to certain limits from their own resources subject to the guidelines detailed
hereunder.
1.3 The bigger banks who have large surplus resources should undertake larger
lending for housing purpose, as this will provide a remunerative avenue for
investment of their surplus funds.
1.4 Wherever, banks are still required to obtain special permission of the Registrar
for financing housing societies, in each and every case, it is suggested that
these banks should obtain general permission to finance housing societies
subject to such other terms and conditions as have been prescribed for the
purpose.
2 ELIGIBLE CATEGORY OF BORROWERS
2.1 PCBs may grant loans to the following categories of borrowers:
(i) Individuals and co-operative/group housing societies.
(ii) Housing boards undertaking housing projects or schemes for
economically weaker sections (EWS), low income groups (LIG) and
middle income groups (MIG).
(iii) Owners of houses/flats for extension and up-gradation, including major
repairs.
3 ELIGIBLE HOUSING SCHEMES
3.1 The borrowers in the above categories will be eligible for finance for the
following types of housing schemes:
(i) Construction/purchase of houses/flats by individuals;
(ii) Repairs, alternations and additions to houses/flats by individuals;
(iii) Schemes for housing and hostels for scheduled castes and scheduled
tribes;
(iv) Under slum clearance schemes -
(a) directly to the slum dwellers on the guarantee of the Government,
or
(b) indirectly through Statutory Boards established for this purpose;
(v) Education, health, social, cultural or other institutions/centres which are
part of a housing project and considered necessary for the development
of settlements or townships;
(vi) Shopping centres, markets and such other centres catering to the daytoday
needs of the residents of the housing colonies and forming part of
a housing project;
4 TERMS AND CONDITIONS FOR HOUSING LOANS
4.1 Finance provided by the PCBs to the eligible categories of borrowers for
eligible housing schemes will be subject to the following terms and
conditions:
4.1.1 Maximum Loan Amount & Margins
(i) PCBs based on their commercial judgement and other prudential
business considerations, with the approval of their Board of
Directors, are free to identify the eligible borrowers, decide
margins and grant housing loans depending upon repaying
capacity of the borrowers.
(ii) The banks may grant housing loans up to a maximum of Rs.
25.00 lakh per beneficiary of a dwelling unit.
(iii) The maximum loan should not exceed 15 percent of capital funds
of the bank in case of individual borrowers and 40 per cent of the
capital funds in case of group of borrowers. The
capital funds for the purpose shall include both Tier I Capital and Tier II capital.
4.1.2 Interest Banks may, with the approval of their Boards, determine the rate of
interest, keeping in view the size of accommodation, degree of risk and
other relevant considerations. 4.1.3 Charging of Penal Interest
Banks may formulate, with the approval of their Boards,
transparent policy for charging penal interest rates to be levied for
reasons such as default in repayment, non-submission of
financial statements, where applicable, etc. The policy should be
governed by well accepted principles of transparency, fairness,
incentive to service the debt and due regard to genuine difficulties
of customers.
4.1.4 Security
(i) PCBs may secure housing loans either
(a) by mortgage of property, or
(b) by government guarantee where forthcoming, or
(c) by both.
(ii) Where this is not feasible, banks may accept security of adequate
value in the form of LIC policies, Government Promissory Notes,
shares/debentures, gold ornaments or such other security as they
deem appropriate.
4.1.5 Period of Loan
(i) Housing loans may be repayable within a maximum period of 15
years, including moratorium or repayment holiday.
(ii) The moratorium or repayment holiday may be granted -
(a) at the option of the beneficiary, or
(b) till completion of constructions, or 18 months from the date
of disbursement of first installment of the loan, whichever is
earlier.
4.1.6 Graduated Installments
(i) The installments should be fixed on a realistic basis taking into
account the repaying capacity of the borrower.
(ii) In order to make housing finance affordable, banks may consider
fixing the instalments on a graduated basis, if there is reasonable
expectation of growth in the income of the borrower in
the coming years. Graduated basis means fixing lower repayment
instalments in the initial years and gradually increasing the
instalment amount in subsequent years coinciding with expected
increase in income in the subsequent years.
5 ADDITIONAL/SUPPLEMENTARY FINANCE
5.1 PCBs may extend additional finance to carry out alterations, additions,
repairs to houses/flats already financed by them subject to repayment
capacity of borrowers.
5.2 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 credit 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 after due assessment of aggregate repayment capacity of
borrowers.
5.3 The banks may also extend need-based credit up to a maximum of
Rs.1.00 lakh in rural and semi-urban areas and Rs.2.00 lakh in urban
areas to the owner of a house/flat only for repairs,
additions, alterations, etc., irrespective of whether the house/flat is owner occupied or tenant
occupied, after obtaining such security as the bank may deem
appropriate. They should satisfy themselves regarding the estimated cost
of repairs, additions, etc. having regard to the extent
of such repairs or additions, materials to be used, cost of labour and other charges and
after obtaining certificate/s from qualified engineers/architects in respect
thereof, considered necessary.
5.4 The terms and conditions relating to margin, interest rates, repaymentperiod etc. in respect
of additional/supplementary finance may be same as indicated in respect of loans for
construction/acquisition.
6 LENDING TO HOUSING BOARDS
6.1 PCBs may extend loans to housing boards within their states. The rate of
interest to be charged on the loans to such boards may be fixed at the
discretion of the banks.
6.2 While extending loans to housing boards, banks may not only keep inview the past
performance of the housing boards in the matter of
recovery from the beneficiaries but should also stipulate that the boards
will ensure prompt and regular recovery of loan instalments from
the beneficiaries.
7 AGGREGATE LIMIT FOR HOUSING FINANCE
7.1 PCBs may utilise up to 15 per cent of their total deposit resources to
provide housing loans and other block capital loans.
7.2 However, the above limit may be exceeded to the extent of funds
obtained for the purpose from higher financing agencies and refinance
from the National Housing Bank.
8 ADVANCES TO BUILDERS/CONTRACTORS
8.1 The builders/contractors generally require huge funds, take advance
payments from the prospective buyers or from those on whose behalf
construction is undertaken and, therefore, they may not normally require
bank finance for the purpose. Any financial assistance extended
to them by primary (urban) co-operative banks may result in dual financing. The
banks should, therefore, normally refrain from sanctioning loans and
advances to this category of borrowers.
8.2 However, where contractors undertake comparatively small construction
work on their own, (i.e. when no advance payments are received by
them for the purpose), the banks may consider extending financial
assistance to them against the hypothecation of construction
materials, provided such loans and advances are in accordance with the by-laws of
the bank and instructions/directives issued by the Reserve Bank from
time to time.
8.3 Banks should undertake a proper scrutiny of the relevant loan
applications, and satisfy themselves, among other things, about the
genuineness of the purpose, the quantum of financial assistance
required, creditworthiness of the borrower, his repayment capacity, etc.
and also observe the usual safeguards, such as, obtaining periodical
stock statements, carrying out periodical inspections, determining
drawing power strictly on the basis of the stock held,
maintaining a margin of not less than 40 to 50 percent, etc. They should also ensure
that materials used up in the construction work are not included in the
stock statements for the purpose of determining the drawing power.
8.4 Banks may also take collateral security, wherever available. As the
construction work progresses, the contractors will get paid and such
payments should be applied to reduce the balance in the borrowal
accounts. If possible, the banks could perhaps enter into a tripartite
agreement with the borrower and his clients, particularly when no
collateral securities are available for such advances.
8.5 Such finance should not be treated as housing finance.
9 HOUSING LOANS UNDER PRIORITY SECTOR
9.1 The following type of loans for housing purposes are eligible for
categorisation under Priority Sector :
(i) Loans up to Rs.15 lakhs for construction of houses by individuals.
Housing finance to borrowers availing loans above Rs 15 lakh will
not be treated as priority sector lending. (ii) Loans up to Rs. 1.00 lakh for repairs, additions or alterations by
individuals in rural and semi urban areas and upto Rs.2.00 lakh in
urban areas
(iii) Assistance given to any governmental agency -
(a) for construction of houses exclusively for the benefit of
scheduled castes and scheduled tribes, subject to a ceiling
of Rs. 5 lakhs of loan amount per housing unit, or
(b) for slum clearance and rehabilitation of slum dwellers.
(iv) Assistance given to a non-governmental agency approved by the
National Housing Bank for the purpose of refinance for
construction of houses or for slum clearance and rehabilitation of
slum dwellers, subject to a ceiling of Rs. 5 lakh of loan amount per
housing unit.
9.2 Investments made by UCBs in bonds issued by NHB / HUDCO on or
after April, 1, 2007 shall not be eligible for classification under priority
sector lending.
9.3 Assistance given to any governmental agency for the purpose of
construction of houses exclusively for the benefit of scheduled castes
and scheduled tribes, subject to a ceiling of Rs.
2 lakhs per unit and all advances for slum clearance and rehabilitation of slum dwellers would
be classified as weaker section advances.
10. PRECAUTIONS
10.1 A number of cases have come to the notice of Reserve Bank, where
unscrupulous persons have defrauded the banks by obtaining
multiple bank finance against the same property by
preparing a number of sets of the original documents and submitting the same to various banks
for obtaining housing finance. Similarly the salary certificate of employees
of certain public sector undertakings were fabricated, so as to match the
requirement of banks for availing higher amounts of loan. The estimates
given were also on the higher side, so as to avoid
contribution of margin money by the borrowers.
10.2 Such frauds could take place on account of the laxity on the part of the
bank officials to follow the laid down procedures for verifying the
genuineness of the documents submitted by the borrowers independently
through their own advocates / solicitors. The banks should,
therefore, take due precaution while accepting various documents.
10.3 Banks would need to satisfy themselves that the loans extended by them
are not for unauthorised construction or for misuse of properties/
encroachment on public land. For this purpose , they should ensure strict
compliance with the procedure laid down in Annex
I.
11. RISK WEIGHT ON REAL ESTATE EXPOSURE
11.1 The risk weight for capital adequacy purposes, in respect of housing
loans, fully secured by mortgage of residential housing properties,
extended to individuals, is 50 % for loans upto Rs
20 lakh. For loans exceeding this limit, the risk weight will continue to be 75 %.
11.2 The risk weights on banks exposure to the builders and contractors for
commercial real estate at present is 150 %. Commercial real estate
exposure for the purpose will include fund based and non-fund based
exposures secured by mortgages on commercial real estates (office
buildings, retail space, multi-purpose commercial premises, multi-family
residential buildings, multi-tenanted commercial premises, industrial or
warehouse space, hotels etc)
11.3 The risk weight for loans and advances to co-operative / group housing
societies and Housing Board and for any other purpose is 100%.
12. NATIONAL BUILDING CODE
Bureau of Indian Standards (BIS) has formulated a comprehensive
building Code namely National Building Code (NBC) of India 2005,
providing guidelines for regulating the building
construction activities across the country. The Code contains all the important aspects
relevant to safe and orderly building development such as administrative
regulations, development control rules and general building
requirements; fire safety requirements; stipulations regarding materials,
structural design and construction (including safety); and
building and plumbing services. Adherence to NBC will be advisable in view of the
importance of safety of buildings especially against natural disasters.
Banks' boards may consider this aspect for incorporation in their loan
policies. Further information regarding the NBC can be accessed
from the website of Bureau of Indian Standards (www.bis.org.in).
Annex I Direction of the Hon ble High Court of Delhi
Procedure for ensuring the loan sought is for authorised structure:
A. Housing Loan for building construction
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.
ii) An affidavit-cum-undertaking must be obtained from the person applying for such
credit facility that he shall not violate thesanctioned plan, construction shall be strictly
as per the sanctioned plan and it shall be the sole responsibility of the executant 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.
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
i) In cases where the applicant approaches the bank/FIs for a credit facility to
purchase a 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.
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 byelaws.
C. 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. 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.
MASTER CIRCULAR - FINANCE FOR HOUSING SCHEMES
A. List of Circulars consolidated in the Master
Circular
|
No. |
Circular
No. |
Date |
Subject |
|
1 |
UBD.
PCB.Cir No. 40/ 13.05.000/ 06-07 |
04.05.2007 |
Annual
Policy Statement for the year 2007-08-
residentail housing loans: reduction of
risk weight |
|
2 |
UBD.PCB.Cir.No.20/09.09.001/06-07 |
22.11.2006 |
Housing
Loans Orders of the Delhi High Court-
Writ Petition by Kalyan Sanstha Welfare
Organisation against Union of India and
Others Implementation of Directions |
|
3. |
UBD.PCB.Cir.no.58/09.09.01/05-06 |
19.06.2006 |
Adherence
to National Building Code (NBC)-
specifications necessary for lending
institutions. |
|
4. |
UBD.PCB.Cir.No.55/09.11.600/05-06 |
01.06.2006 |
Annual
Policy Statement for the year 2006-07-
risk weight on exposures to commercial
real estate. |
|
5. |
UBD.PCB.Cir.No.
8/09.11.600/05-06 |
09.08.2005 |
Prudential
Norms on capital adequacy-risk weigh on
housing finance/commercial real estate
exposures. |
|
6. |
UBD.
BPD(PCB)Cir 29/09.09.01/2004-05 |
14.12.2004 |
Priority
sector lending-Housing Loan enhancement of
ceiling for UCBs |
|
7. |
UBD.PCB.No.30
/ 09.22.01/2003-04 |
16.01.2004 |
Frauds
by deposit of fake title deeds of the
property / fake salary certificates in
housing loans |
|
8. |
UBD.BPD.No.45/
09.09.01/2002-03 |
14-05-2003 |
Credit
Policy for the year 203-04 Priority
Sector Advances |
|
9. |
UBD.BPD.PCB.No.
31/09.09.01/ 2002-03 |
30-12-02 |
Priority
Sector Advances |
|
10. |
UBD.No.Plan.Cir.RCS
.2/09.22.01/98-99 |
15-03-1999 |
Finance
for Housing Schemes - Primary (Urban)
Co-operative Banks |
|
11. |
UBD.No.Plan/.RO.49/09.22.01/97-98 |
17-06-1998 |
Finance
for Housing Scheme - Primary (Urban)
Co-operative Banks |
|
12. |
UBD.No.
Plan .CIR(RCS).9/09.22. 01/95-96 |
01-09-1995 |
Finance
for Housing Schemes - Primary (Urban)
Co-operative Banks |
|
13. |
UBD.No.Plan.CIR(RCS)8/
09.22.01/9 4-95 |
11-01-1995 |
Finance
for Housing Schemes - Primary (Urban)
Co-operative Banks |
|
14. |
UBD.No.P&O.10/UB-31/91-92 |
26-03-1992 |
Finance
for Housing Schemes - Primary (Urban)
Co-operative Banks |
|
15. |
UBD.No.P&O.108/UB.31-88/89 |
05-04-1989 |
Finance
for Housing Schemes - Primary (Urban)
Co-operative Banks |
|
16. |
UBD.DC1/R.1-87/88 |
03-07-1987 |
Maximum
Limit on Advances |
|
17. |
UBD.No.(DC)2/R.1-87/88 |
03-07-1987 |
Maximum
Limit on Advances |
|
18. |
DBOD.UBD.P&O.161/UB.31-83/84 |
02-09-1983 |
Urban
co-operative bank finance for housing
schemes |
|
19. |
DBOD.UBD.P&O.229/UB.31-82/83 |
05-11-1982 |
Co-operative
bank finance for housing schemes |
|
20. |
DBOD.UBD.P&O
230/UB.31-82/83 |
05-11-1982 |
Co-operative
bank finance for housing schemes for the
economically weaker sections of the
community |
|
21. |
ACD.Plan.(SZ)401/PR.338-81/2 |
17-08-1981 |
Co-operative
Bank Finance For Housing Schemes |
|
22. |
ACD.Plan.1502/PR.338-76/7 |
11-10-1976 |
Co-operative
bank finance for housing schemes for the
economically weaker sections of the
community |
|
23. |
ACD.Plan.(781)/PR.338-76/77 |
24-08-1976 |
Co-operative
bank finance for housing schemes for the
economically weaker sections of the
community |
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