‘Don’t give loans for 80:20 schemes’
RBI’S directive to banks aimed at protecting buyers’ interests
In order to prevent India’s own subprime crisis, the Reserve Bank of India has advised banks to link the disbursal of home loans to stages of construction in order to protect the interest of buyers and contain the fallout of “innovative” housing financing schemes, popularly known as 80:20 and 75:25 schemes.
Upfront disbursal “should not be made in cases of incomplete/underconstruction/greenfield housing projects,” an RBI notification has said, adding that such home loan products are likely to expose banks and their borrowers to additional risks. The RBI directive is likely to hit the realtors hard, especially those who are dependent on these schemes to boost sales when demand is low and to raise funds for construction through buyers as residential loans.
“The RBI decision is counterproductive and will push the real estate sector into a financial crisis. The customer for whose interest the decision is aimed at, is going to be the greatest suf- ferer as the only source of funds so far available to the developer will be denied. This will leave many real estate projects in the lurch,” says R K Arora, CMD, Supertech Limited. Some banks offer “innovative housing loan schemes” in association with developers/builders, where a housing loan is disbursed upfront to builders without linking it to the various stages of construction. In many instances, even the interest/EMI on the loan is serviced by the builder during the construction period.
“I think this is a great and timely move by the RBI, as at this stage, there are not many players offering such products and I feel that such a move will protect the customer and the system from any issues which may arise later,” says Keki Mistry, vice-chairman and CEO, HDFC.
HDFC chairman Deepak Parekh too, in his annual statement to the company’s shareholders in June this year, had spoken out against such schemes.