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REGULATIONS FOR HOUSING FINANCE |
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REGULATION R-15 |
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Banks / DFIs shall determine the housing finance limit, both in urban and rural areas,
in accordance with their internal credit policy, credit worthiness and loan repayment capacity of the
borrowers. At the same time, while determining the credit worthiness and repayment capacity of the
prospective borrower, banks / DFIs shall ensure that the total monthly amortization payments of consumer
loans, inclusive of housing loan, should not exceed 50% of the net disposable income of the prospective
borrower.
Banks / DFIs will not allow housing finance purely for the purchase of land / plots; rather, such financing
would be extended for the purchase of land / plot and construction on it. Accordingly, the sanctioned loan
limit, assessed on the basis of repayment capacity of the borrower, value of land / plot and cost of construction
on it etc., should be disbursed in tranches, i.e. up to a maximum of 50% of the loan limit can be disbursed for
the purchase of land/ plot, and the remaining amount be disbursed for construction there-upon. Further,
the lending bank / DFI will take a realistic construction schedule from the borrower before allowing
disbursement of the initial loan limit for the purchase of land / plot.
Banks / DFIs may allow housing finance facility for construction of houses against the security of
land / plot already owned by their customers. However, the lending bank / DFI will ensure that the
loan amount is utilized strictly for the construction purpose and loan is disbursed in tranches as
per construction schedule.
Loans against the security of existing land / plot, or for the purchase of new piece of land / plot,
for commercial and industrial purposes may be allowed. But such loans will be treated as Commercial Loans,
which will be covered either under Prudential Regulations for Corporate / Commercial Banking or Prudential
Regulations for SMEs Financing. Banks / DFIs may allow Housing Loans in the rural areas provided all
relevant guidelines/regulations on the subject are complied with by them.
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REGULATION R-16 |
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The housing finance facility shall be provided at a maximum debt-equity ratio of 85:15. |
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REGULATION R-17 |
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Banks / DFIs are free to extend mortgage loans for housing, for a period not exceeding
twenty years. Banks / DFIs should be mindful of adequate asset liability matching. |
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REGULATION R-18 |
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The house financed by the bank / DFI shall be mortgaged in bank s / DFI s
favour by way of equitable or registered mortgage. |
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REGULATION R-19 |
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Banks / DFIs shall either engage professional expertise or arrange sufficient training for their
concerned officials to evaluate the property, assess the genuineness and integrity of the title
documents, etc. It may, however, be noted that the requirement of full-scope and desk-top evaluation,
as required under R-8 and R-11 of Prudential Regulations for Corporate / Commercial Banking and SMEs
Financing respectively, will not be applicable on housing finance. |
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REGULATION R-20 |
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The bank s / DFI s management should put in place a mechanism to monitor conditions
in the real estate market (or other product market) at least on quarterly basis to ensure that its
policies are aligned to current market condition. |
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REGULATION R-21 |
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Banks / DFIs are encouraged to develop floating rate products for extending housing finance,
thereby managing interest rate risk to avoid its adverse effects. Banks / DFIs are also encouraged
to develop in-house system to stress test their housing portfolio against adverse movements in
interest rates as also maturity mismatches. |
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REGULATION R-21 |
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The mortgage loan shall be classified in the following manner.
| Sr # |
Classification |
Determinant |
| 1 |
Substandard |
where markup / Interest or principal is overdue by 90 days or more from due date |
| 2 |
Doubtful |
where markup / Interest or principal is overdue by 180 days or more from due date |
| 3 |
Loss |
where markup / Interest or principal is overdue by one Year or more from due date |
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