Consolidation Of Housing Finance Rules

Posted On - 3 May, 2024 • By - Jayanth Ravi

To consolidate the framework of rules/ regulations and clarification on Housing Finance issued to banks by the Reserve Bank of India from time to time. A statutory directive issued by the Reserve Bank in exercise of the powers conferred by Sections 21 and 35 A of the Banking Regulation Act, 1949.

The RBI’s directive has statutory authority, exercised under Sections 21 and 35A of the Banking Regulation Act, 1949. It holds legal weight, requiring banks to comply with these rules in their lending practices. This document consolidates all previous instructions, as listed in the appendix. It serves as an updated, comprehensive guide for banks, integrating all circulars and clarifications issued previously by the RBI. The framework applies to all Scheduled Commercial Banks in India, excluding Regional Rural Banks. Banks play a crucial role in providing credit to the housing sector. With their extensive branch networks, they have a significant impact on housing development across the country. Banks must adhere to several RBI guidelines when granting housing loans to ensure they support production and construction activities, not speculation in real estate.


  1. While deciding the quantum of loan to be granted as housing finance, banks should abide by the following Loan to Value (LTV) and Risk Weights (RWs): Category of Loan LTV Ratio (%) Risk Weight (%)
    • (a) Individual Housing Loans Upto ₹ 30 lakh ≤ 80 35 > 80 and ≤ 90 50 Above ₹ 30 lakh & upto ₹ 75 lakh ≤ 80 35 Above ₹ 75 lakh ≤ 75 50
    • CRE – RH NA 75 As a counter cyclical measure, for Individual Housing Loans sanctioned on or after October 16, 2020 and up to March 31, 2023, the risk weights shall be as per the circular DOR.No.BP.BC.24/08.12.015/2020-21 dated October 16, 2020 on Individual Housing Loans – Rationalisation of Risk Weights.
    • The risk weights are as under – LTV Ratio (%) Risk Weight (%) ≤ 80 35 > 80 and ≤ 90 50
  2. In order to have uniformity in the practices adopted for deciding the value of the house property while sanctioning housing loans, banks should not include stamp duty, registration and other documentation charges in the cost of the housing property they finance so that the effectiveness of LTV norms is not diluted.
  3. However, in cases where the cost of the house/dwelling units does not exceed Rs.10 lakh, bank may add stamp duty, registration and other documentation charges to the cost of the house/dwelling unit for the purpose of calculating LTV ratio.


UPFRONT DISBURSAL OF HOUSING LOANS – Some banks have introduced housing loan schemes in partnership with developers or builders. These schemes, such as 80:20 and 75:25, involve upfront disbursal of the entire loan to the builder without linking it to construction progress. This can pose risks, including disputes between buyers and builders, delayed or defaulted payments, and project non-completion. If builders fail to make payments during the agreed period, it can negatively affect borrowers’ credit scores. Banks could also face higher risks if they disburse loans upfront for incomplete or under-construction projects. Disbursements should be tied to construction stages to mitigate these risks. For government-sponsored projects with a reliable track record, disbursement according to predefined stages is permitted. It’s crucial that banks ensure customers understand the risks associated with such loan products.


Banks must charge interest on housing finance according to RBI’s guidelines in accordance with the provisions contained in the Master Direction – Reserve Bank of India (Interest Rate on Advances) Directions, 2016, as amended from time to time.Loan approvals should only be disbursed once the borrower has obtained all necessary statutory clearances.


In view of the observations of Hon’ble High Court of Judicature at Bombay, while granting finance to specific housing / development projects, banks are advised to stipulate as a part of the terms and conditions that:

  1. the builder / developer / company would disclose in the Pamphlets / Brochures etc., the name(s) of the bank(s) to which the property is mortgaged.
  2. the builder / developer / company would append the information relating to mortgage while publishing advertisement of a particular scheme in newspapers / magazines etc.
  3. the builder / developer / company would indicate in their pamphlets / brochures, that they would provide No Objection Certificate (NOC) / permission of the mortgagee bank for sale of flats / property, if required.
  4. Banks are advised to ensure compliance with the above terms and conditions and funds should not be released unless the builder/developer/company fulfils the above requirements.
  5. The above-mentioned provisions will be mutatis-mutandis, applicable to Commercial Real Estate also.


The grant of housing loan for the purpose of the priority sector lending targets including reporting requirements will additionally be subject to the instructions on “Priority Sector Lending” as amended from time to time.


Banks must follow fair lending practices, including timely release of property documents after loan repayment and clear disclosure of penal charges. They should also adhere to the National Building Code (NBC) and National Disaster Management Authority (NDMA) guidelines to ensure building safety and disaster resilience.