RBI Master Circular No: RBI/2014-15/20 (01-Jul-14) Master Circular- Finance for Housing Schemes - UCBs

UBD.BPD.(PCB) MC No.2/09.22.010/2014-15

The Chief Executive Officers

All Primary (Urban) Co-operative Banks

Madam / Dear Sir,

Please refer to our Master Circular UBD.BPD.(PCB).MC.No.2/09.22.010/2013-14 dated July 1, 2013 on the captioned subject (available at RBI website www.rbi.org.in). The enclosed Master Circular consolidates and updates all the instructions / guidelines on the subject issued up to June 30, 2014 as listed in the Appendix.

Yours faithfully

A.K. Bera

Principal Chief General Manager

Encl: as above

Master Circular

Finance for Housing Schemes - UCBs


1  General 
2  Eligible Category of Borrowers 
3  Eligible Housing Schemes 
4  Terms and Conditions for Housing Loans 
4.1  Maximum Loan Amount and Margin 
4.2  A. Interest B. Foreclosure Charges / Prepayment Penalty 
4.3  Charging of Penal Interest 
4.4  Security 
4.5  Period of Loan 
4.6  Graduated Instalments 
4.7  Aggregate Limit for Housing Finance 
5  Additional / Supplementary Finance 
6  Lending to Housing Boards 
7  Advances to Builders / Contractors 
8  Housing Loans under Priority Sector 
9  Precautions 
10  NationalBuilding Code 
  Annex 1 
  Annex 2 

1. General

1.1 The role of primary (urban) co-operative banks (UCBs) in providing housing finance has been reviewed from time to time. These banks, with their vast network, occupy a very strategic 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 UCBs 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 UCBs 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 Bigger banks that have large surplus resources may undertake larger lending for housing, 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, it is suggested that these banks should obtain general permission to finance housing societies subject to such terms and conditions as may be prescribed for the purpose.

2. Eligible Category of Borrowers

UCBs 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

The borrowers in the above categories will be eligible for finance for the following types of housing schemes:

a. Construction / purchase of houses / flats by individuals

b. Repairs, alterations and additions to houses / flats by individuals

c. Schemes for housing and hostels for scheduled castes and scheduled tribes

d. Under slum clearance schemes - directly to the slum dwellers on the guarantee of the Government, or indirectly through Statutory Boards established for this purpose

e. 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

f. Shopping centres, markets and such other centres catering to the day to day needs of the residents of the housing colonies and forming part of a housing project

4. Terms and Conditions for Housing Loans

Finance provided by the UCBs to the eligible categories of borrowers for eligible housing schemes will be subject to the following terms and conditions:

4.1 Maximum Loan Amount & Margins

i. UCBs, based on their commercial judgment 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 the repaying capacity of borrowers.

ii. Tier-I UCBs are permitted to extend individual housing loans upto a maximum of ` 30 lakh per beneficiary of a dwelling unit and Tier II UCBs (UCBs other than Tier I) to extend individual housing loans up to a maximum of ` 70.00 lakh per beneficiary of a dwelling unit subject to extant prudential exposure limits.

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.

* Tier I UCBs are categorised as under:

- Banks having deposits below `100 crore operating in a single district

- Banks with deposits below `100 crore operating in more than one district will be treated as Tier I provided the branches are in contiguous districts and deposits and advances of branches in one district separately constitute at least 95% of the total deposits and advances respectively of the bank and

- Banks with deposits below `100 crore, whose branches were originally in a single district but subsequently, became multi-district due to reorganization of the district

Deposits and advances as referred to in the above definition may be reckoned as on 31st March of the immediate preceding financial year.

4.2 A. 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.

B. Foreclosure Charges / Prepayment Penalty

With effect from June 26, 2012 it has been decided that UCBs will not be permitted to charge foreclosure charges / prepayment penalties in home loans on floating interest rate basis.

4.3 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, 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.

4.4 Security

(i) UCBs 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.

4.5 Period of Loan

(i) Housing loans may be repayable within a maximum period of 20 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 instalment of the loan, whichever is earlier.

4.6 Graduated Instalments

(i) The instalments 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 subsequent years.

4.7 Aggregate Limit for Housing Finance

4.7.1 The exposure of UCBs to housing, real estate and commercial real estate loans would be limited to 10 per cent of their total assets. The above ceiling of 10 per cent of total assets can be exceeded by an additional limit of 5 per cent of total assets for the purpose of grant of housing loans to individuals up to ` 25 lakh, which is covered under priority sector.

4.7.2 The total assets may be reckoned based on the audited balance sheet as on March 31 of the preceding financial year. For reckoning total assets, losses, intangible assets, contra items like bills receivables etc. would be excluded.

4.7.3 The exposure should take into account both fund based and non-fund based facilities.

4.7.4 Working capital loans given by UCBs against hypothecation of construction materials provided to the contractors who undertake comparatively small construction on their own without receiving advance payments as provided for in paragraph 7 of this circular is exempted from the prescribed limit.

4.7.5 Finance extended to the eligible category of borrowers mentioned in paragraph 2 above will only be eligible to be treated as housing finance. While the purpose of the loan shall determine whether the loans granted against the security of immovable property need to be classified as real estate loans, the source of repayment will determine whether the exposure is against commercial real estate. For classification of such loans as Real Estate / Commercial Real Estate, UCBs may be guided by the instructions contained in Annex 1. As loans to the residential housing projects under the Commercial Real Estate (CRE) Sector exhibit lesser risk and volatility than the CRE Sector taken as a whole, it has been decided to carve out a separate sub-sector called ''Commercial Real Estate-- Residential Housing'' (CRE-RH) from the CRE Sector. CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment. Such projects should...

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