Skim off realty: No more 20:80 or 25:75 schemes

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SummaryDiscouraging innovative schemes, RBI has asked banks to link home loan disbursals to stages of construction.

especially in the metros, has prompted the RBI to sound out banks against indiscriminate lending under these schemes. Typically, under the scheme, the builder gets funds up-front at a cheaper interest rate of around 10-11%. On the other hand, construction finance for realty projects carries an interest rate of about 18% as it involves higher risk.

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The 20:80 scheme is applicable when the agreement value of the flat, which includes service tax and value added tax is up to R75 lakh. In case the agreement value exceeds R75 lakh, the scheme becomes 25:75 because as per RBI guidelines, banks can lend only up to 75% of the total property cost and the buyer will have to pay the balance amount.

The central bank has underlined that banks must ensure that the buyer is made aware of all the risks and liabilities undertaken under such a scheme. “Such housing loan products are likely to expose the banks as well as their home loan borrowers to additional risks eg in case of disputes between individual borrowers and developers/builders, default/delayed payment of interest/EMI by the developer/builder during the agreed period on behalf of the borrower, non-completion of the project on time, etc. Further, any delayed payments by developers/builders on behalf of individual borrowers to banks may lead to lower credit rating/scoring of such borrowers by credit information companies (CICs) as information about servicing of loans gets passed on to the CICs on a regular basis,” says the RBI notification.

The RBI has advised banks that disbursal of housing loans to individuals should be linked to the stages of construction of the project or the house and up-front disbursal should not be made in cases of incomplete/under-construction/green field housing projects.

A Crisil research note, however, says the move is unlikely to have any major impact on developers as very few of them are being given up-front disbursements under these schemes. “Our coverage reveals that amongst the top 10 cities, 20:80 and similar schemes are mainly prevalent in Mumbai and National Capital Region. However, even in these cities, the

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