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.

Banks can no longer give loans on real estate schemes termed as 20:80 or 25:75 in which the builder, and not the buyer, pays the interest on the loan for a specified period. The Reserve Bank of India (RBI) has tightened the norms for disbursal of home loans and has asked banks to link disbursals to stages of construction to protect the interests of buyers and contain the fallout of such innovative housing financing schemes. It feels that any default by builders could affect the credit profile of the borrower and expose banks to higher NPAs.

The central bank has underlined that some banks have introduced innovative housing loan schemes in association with developers/builders like up-front disbursal of housing loans to builders without linking the disbursals to various stages of construction of projects. In such schemes, the interest or the equated monthly installment (EMI) on the loan availed of by the individual is serviced by the builders during the construction period or a specified period agreed by the three — the bank, the builder and the buyer, and involves signing of tripartite agreements.

In this scheme, the buyer pays around 20% of the up-front cost and the bank disburses the entire loan to the builder through the individual. The builder finances the construction with the money, and agrees to pay interest on behalf of the borrower to the bank, and the borrower only pays the part of the principal repayment to the bank. After the buyer gets the possession of the house or after the completion of the agreed period of the scheme, the buyer pays the interest and the principal repayment. These schemes are for a fixed period, which means if the developer delays the project, it is the buyer and not the developer, who will bear the interest cost after the agreed period, irrespective of whether the builder delays in giving possession.

Some of the biggest banks like ICICI Bank and Axis Bank and mortgage lender HDFC have tied up with builders to offer the 20:80 scheme to stoke demand because of the slowdown. The increasing popularity of such schemes, 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

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