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

4.1.1 Maximum Loan Amount & Margins

(i) PCBs based on their commercial judgement 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 repaying capacity of the borrowers.

(ii) The banks may grant housing loans up to a maximum of Rs.10.00 lakh per beneficiary of a dwelling unit.

(ii) The maximum loan should not exceed 20 percent of capital funds of the bank in case of individual borrowers and 50 per cent of the capital funds in case of group of borrowers.

4.1.2 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.

4.1.3 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, where applicable, 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.

4.1.4 Security

(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.

4.1.5 Period of Loan

(i) Housing loans may be repayable within a maximum period of 15 years, including moratorium or repayment holiday.

4.1.6 Graduated Instalments

(i) The instalments should be fixed on a realistic basis taking into account the repaying capacity of the borrower. For this purpose, the outgo on account of housing loan repayment (including principal and interest) should not normally exceed 30 per cent of the borrower's income.

(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 the subsequent years.

5 Additional/Supplementary Finance

5.1 PCBs may extend additional finance to carry out alterations, additions, repairs to houses/flats already financed by them subject to repayment capacity of borrowers.

5.2 In the case of individuals who might have raised funds for construction/ acquisition of accommodation from other sources and need supplementary finance, banks may extend credit after obtaining pari passu or second mortgage charge over the property mortgaged in favour of other lenders and/or against such other security as they may deem appropriate after due assessment of aggregate repayment capacity of borrowers.

5.3 The banks may also extend need-based credit up to a maximum of Rs.1.00 lakh in rural and semi-urban areas and Rs.2.00 lakh in urban areas to the owner of a house/flat only for repairs, additions, alterations, etc., irrespective of whether the house/flat is owner occupied or tenant occupied, after obtaining such security as the bank may deem appropriate. They should satisfy themselves regarding the estimated cost of repairs, additions, etc. having regard to the extent of such repairs or additions, materials to be used, cost of labour and other charges and after obtaining certificate/s from qualified engineers/architects in respect thereof, considered necessary.

5.4 The terms and conditions relating to margin, interest rates, repayment period etc. in respect of additional/supplementary finance may be same as indicated in respect of loans for construction/acquisition.

6 Lending to Housing Boards

6.1 PCBs may extend loans to housing boards within their states. The rate of interest to be charged on the loans to such boards may be fixed at the discretion of the banks.

6.2 While extending loans to housing boards, banks may not only keep in view the past performance of the housing boards in the matter of recovery from the beneficiaries but should also stipulate that the boards will ensure prompt and regular recovery of loan instalments from the beneficiaries.

7 Aggregate Limit For Housing Finance

7.1 PCBs may utilise up to 15 per cent of their total deposit resources to provide housing loans and other block capital loans.

7.2 However, the above limit may be exceeded to the extent of funds obtained for the purpose from higher financing agencies and refinance from the National Housing Bank.

8 Advances to Builders/Contractors

8.1 The builders/contractors generally require huge funds, take advance payments from the prospective buyers or from those on whose behalf construction is undertaken and, therefore, they may not normally require bank finance for the purpose. Any financial assistance extended to them by primary (urban) co-operative banks may result in dual financing. The banks should, therefore, normally refrain from sanctioning loans and advances to this category of borrowers.

8.2 However, where contractors undertake comparatively small construction work on their own, (i.e. when no advance payments are received by them for the purpose), the banks may consider extending financial assistance to them against the hypothecation of construction materials, provided such loans and advances are in accordance with the by-laws of the bank and instructions/directives issued by the Reserve Bank from time to time.

8.3 Banks should undertake a proper scrutiny of the relevant loan applications, and satisfy themselves, among other things, about the genuineness of the purpose, the quantum of financial assistance required, creditworthiness of the borrower, his repayment capacity, etc. and also observe the usual safeguards, such as, obtaining periodical stock statements, carrying out periodical inspections, determining drawing power strictly on the basis of the stock held, maintaining a margin of not less than 40 to 50 percent, etc. They should also ensure that materials used up in the construction work are not included in the stock statements for the purpose of determining the drawing power.

8.4 Banks may also take collateral security, wherever available. As the construction work progresses, the contractors will get paid and such payments should be applied to reduce the balance in the borrowal accounts. If possible, the banks could perhaps enter into a tripartite agreement with the borrower and his clients, particularly when no collateral securities are available for such advances.

8.5 Such finance should not be treated as housing finance.

9 housing loans under priority sector

The following type of loans for housing purposes are eligible for categorisation under Priority Sector :

9.1 Investments in Bonds

Investments made by PCBs in bonds issued by NHB/HUDCO exclusively for financing of housing, irrespective of the loan size per dwelling unit will be reckoned for inclusion under priority sector advances.

Assistance given to any governmental agency for the purpose of construction of houses exclusively for the benefit of scheduled castes and scheduled tribes, subject to a ceiling of Rs. 2 lakhs per unit and all advances for slum clearance and rehabilitation of slum dwellers would be classified as weaker section advances.

10. PRECAUTIONS

A number of cases have come to the notice of Reserve Bank, where unscrupulous persons have defrauded the banks by obtaining multiple bank finance against the same property by preparing a number of sets of the original documents and submitting the same to various banks for obtaining housing finance. Similarly the salary certificate of employees of certain public sector undertakings were fabricated, so as to match the requirement of banks for availing higher amounts of loan. The estimates given were also on the higher sides, so as to avoid contribution of margin money by the borrowers.

Such frauds could take place on account of the laxity on the part of the bank officials to follow the laid down procedures for verifying the genuineness of the documents submitted by the borrowers independently through their own advocates / solicitors. The banks should, therefore, to take due precaution while accepting various documents.

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